The Moderating Role of Bank Performance Indicators on Credit Risk of Indian Public Sector Banks

Abstract

Credit risk is inherent in banking. With its pervasive impact, it poses significant threat to the existence, stability and growth of the banking industry. The present study investigates the moderating role of various bank performance indicators on the relationship between lending and credit risk, i.e., Non Performing Assets (NPA) during the period 2000-01 to 2011-12. The study concentrates on Indian Public Sector Banks. Basically, NPA results from advances. This relationship is often more complex because it is modified by the changes in both bank performance indicators and macroeconomic indicators. The bank performance indicators moderate the relationship between advances and NPA. In order to achieve the stated objectives, the study utilized correlation, regression and ANOVA with moderation effect. The study revealed that the selected bank performance variables exercise a moderating role in the relationship between advances and NPA. The conclusion derived from the analysis can be utilized to improve the credit risk management in banks.

Keywords: Non Performing Assets, Advances, Moderation, Performance Indicators