Effectiveness of Credit Risk Management Practices in Public and Private Sector Banks

Credit risk management is one of the most critical functions in the banking sector as it directly influences the financial stability, profitability, and sustainability of banks. Credit risk arises when borrowers fail to repay the principal amount or interest as agreed, leading to loan defaults and an increase in Non-Performing Assets (NPAs). The purpose of this study is to examine the effectiveness of credit risk management practices in public and private sector banks in India. The study focuses on understanding how banks identify, assess, monitor, and control credit risk in their lending operations. Secondary data collected from bank reports, Reserve Bank of India publications, and financial statements were used for analysis. The research compares key indicators such as Gross Non-Performing Assets (GNPA), Net Non-Performing Assets (NNPA), capital adequacy ratio, and profitability indicators to evaluate the effectiveness of credit risk management. The findings suggest that private sector banks generally demonstrate stronger credit appraisal systems, better monitoring mechanisms, and lower NPA ratios compared to public sector banks. However, public sector banks play a significant role in financial inclusion and priority sector lending. The study concludes that strengthening credit risk assessment, improving monitoring systems, and adopting technology-driven risk management frameworks can significantly enhance the effectiveness of credit risk management practices in both sectors.