Bank Governance Practices and Credit Risk Management: An Empirical Examination of Indian Commercial Banks

Abstract

The present study is conducted to understand how bank governance practices and macroeconomic factors influence commercial banks’ credit risk management (CRM) in India. For the study, 32 commercial banks have been selected. Secondary data have been collected from the annual reports of the respective banks from the period 2010–11 to 2022–23. The robust least square regression model has been used for the study. Empirical results show that overall bank governance practices can improve non-performing loan ratio (NPLR). Further, governance practices at the board level can improve credit risk and capital adequacy. Bank governance practice at the management level, however, failed to increase Z-score. From the empirical testing, it is clear that bank governance practices are influenced differently by various types of credit risk factors. The study’s results will be helpful to regulators and other banking sector stakeholders to understand how bank governance practices affect CRM. In this paper, we categorise the bank governance index into two parts – bank governance practices at the board level and bank governance practices at the management level as per Basel (2015) – and study their impact on CRM in the Indian context.

Keywords: Commercial Banks, Credit Risk Management, Bank Governance, Z-Score, India

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