In recent times, Credit Risk Management (CRM) has come under increasing scrutiny in both academia and practice. It is commonly believed that CRM strategies followed vary with bank-specific characteristics. However, a study focusing on examining the association between size of the bank and CRM strategies in India does not seem to have been attempted so far. Drawing upon primary data of 35 Indian commercial banks during 2007-2008, this study aims to explore the extent to which bank size impacts on the choice of a broad set of CRM strategies relating to four elements of CRM, namely, (1) CRM organization; (2) CRM policy; (3) CRM operations and systems at transaction level; and (4) CRM operations and systems at portfolio level. For this purpose, sample banks were classified on the basis of their value of advances portfolio into three size categories, namely, small, medium and large banks. The findings obtained using discriminate analysis together with chi-square test suggested significant association between the size of bank and some of the CRM strategies, particularly with regard to CRM organization and CRM operations and systems at transaction level. It was concluded that large-sized banks generally emphasized the elements of specialization and centralization in the choice of their CRM strategies. The findings also indicated that a mix of the credit risk avoidance, credit risk mitigation and credit risk control approach was commonly followed by all the sample banks, irrespective of their size.

In a commercial bank, credit risk in lending activities is the possibility that the actual returns on a loan may vary from what the lenders expected, the difference of which represents financial loss. In other words credit risk “is the risk of repayment, i.e., the possibility that an obligor will fail to perform as agreed and adversely affects capital and earnings” (Comptroller’s Handbook, 1998, Washington DC). Credit risk is critical since the default of a small number of important borrowers can generate large losses, potentially leading to insolvency of bank. A bank may strive towards high volume of credit by building up huge level of advances portfolio, but this growth is also accompanied by higher risk of incurring high credit losses. While the credit targets keep on pushing banks towards aggressive approach, the risk management aspect compels them to be rather conservative. To ensure proper risk management without compromising on volume of credit/lending operations, one has to also ensure that the Credit Risk Management (CRM) framework is appropriately designed and implemented. Next, we take a close look at the association between the sizes of credit and risk underlying CRM in a commercial bank.

Financial Risk Management Journal, In recent times, Credit Risk Management, CRM, increasing, scrutiny, both academia and practice.