Published Online:April 2025
Product Name:The IUP Journal of Corporate Governance
Product Type:Article
Product Code:IJCG050425
DOI:10.71329/IUPJCG/2025.24.2.80-92
Author Name:Rajkumar S and Alagesan M V
Availability:YES
Subject/Domain:Management
Download Format:PDF
Pages:80-92
Corporate loan defaults account for 90% of all defaults on loans extended by the banking sector. Although a comprehensive risk management framework for addressing various risks in the banking sector has been introduced as part of corporate governance practice and sustainability, corporate default is on the higher side. This study analyzes the various factors contributing risk to the banks and the steps to minimize the effect of default on the banking system. The study examines assets variables like loans, investments, and non-performing assets (NPAs); liability side variables like capital surplus and reserves, deposits, and borrowings; and profit and loss account variables like net interest income and other incomes to understand the direct and indirect effect of NPAs on the working of banks. The findings reveal that loan defaults affect banks’ profitability and overall performance. The paper recommends effective implementation of risk management measures by the top management of banks and introduction of independent credit rating mechanism to minimize loan defaults to improve the sustainability of the banking system.
Indian banks have been facing the problem of recovery of loans extended to corporate sector for the last two decades. The banking system is growing by leaps and bounds with growth in deposits due to the saving habits of Indians at large, and the Indian industry grows by borrowing from banks.