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Parab C R 2019.Pdf CREDIT RISK AND ITS IMPACT ON THE PERFORMANCE OF SELECT PUBLIC AND PRIVATE BANKS IN INDIA Thesis Submitted to Goa University for the award of the Degree of DOCTOR OF PHILOSOPHY in COMMERCE by Ms. CHAMPA RAMKRISHNA PARAB Under the guidance of Dr. M. R. Patil Dnyanprassarak Mandal‟s College and Research Centre, Assagao, Goa. JUNE 2019 Dedicated to my beloved father “BABA”, my moral Support and source of inspiration, Late Shri Ramkrishna Vithal Parab, Left for his heavenly abode on Monday the 28th August 2017. II I, Ms.Champa Ramkrishna Parab, hereby declare that this thesis for Ph.D. degree in Commerce titled “Credit Risk and its Impact on the Performance of Select Public and Private Banks in India” is a record of the original research work done by me under the guidance of Dr M. R. Patil, Dnyanprassarak Mandal‟s College and Research Centre, Assagao, Goa, Goa University and that the same has not been previously formed the basis for the award of any degree, diploma or any certificate or similar title of Goa University or any other Universities. Place: Taleigao Ms. Champa Ramkrishna Parab Date: 21/06/2019 Research Scholar Department of Commerce Goa University- Goa III This is to certify that the PhD thesis titled “Credit Risk and its Impact on the Performance of Select Public and Private Banks in India” is a record of the original work carried out by, Ms. Champa Ramkrishna Parab under my guidance and supervision and the same has not been previously formed the basis for the award of any degree, diploma or any certificate or similar title of Goa University or any other Universities. Place: Taleigao Date: 21/06/2019 Dr. M. R. Patil Research Guide Dnyanprassarak Mandal‟s College and Research Centre, Assgao Goa, Goa University. IV ACKNOWLEDEMENT First of all, I praise the almighty God for his abundant blessings to proceed successfully with a good health, strength of mind and spirit without which this research works would never have been possible. The thesis is the fulfillment of dreams, disciplines and hard work. It is a culmination of guidance, support, love and involvement of many who provided their valuable time in successful completion of this task. At the outset I Miss Champa Ramkrishna Parab express my sincere gratitude to my guide Dr. M. R. Patil, Dnyanprassarak Mandal’s College & Research Centre, Assagao Goa, Goa University for his constant encouragement ,motivation, support and guidance from beginning till the completion of my research work. I take this opportunity to thank Principal Dr. D.B. Arolkar, Dnyanprassarak Mandal’s College and Research Centre, Assagao Goa, for giving me an opportunity to register as a PhD Research Scholar of the 1st batch of newly established DM’s Research Centre. I am grateful to prof. P. K. Sudharsan, Subject Expert and Member, Doctoral Committee, for his expert advice and constructive suggestions. V I am also thankful to Prof. Y. V. Reddy, Prof Anjana Raju and Head and Dean Prof. Subhash K.B., Department of Commerce Goa University for their encouragement and valuable input and constant support. I also express my sincere thanks to the administrative staff of the Department of Commerce, Goa University. I am indebted to Dr. Vishal R. Chari, Dept. of Economics, Shree Damodar College of Commerce and Economics, Margao, for his valuable suggestions and helping me in data arrangement and application of statistical tools. I express my gratitude to Dr Harip Khanapuri, member Doctoral Committee, for his constructive suggestions in analysis of data. My indebtedness is due to the Librarian Dr. Gopakumar V. and the library staff for providing necessary help and assistance from time to time. I am indebted to Shri Sacheet Parshikar for conveniently assisting me in formatting of my thesis. I take this opportunity to express my heartfelt gratitude to many learned researchers whose work I have referred to, in the process of reviewing the literature. I would like to acknowledge the contribution of those whose names have not been mentioned but who have, nevertheless, played their part in making this research work successful. I place on record my heartfelt thanks to all my students VI for their prayers, encouragement, moral support, wishes and assistance in data entry process. I express my honest and heartfelt gratitude to my teacher, the Chairman & the former Principal, Shri M. S. Kamat, Murgaon Education Society’s College of Art & Com.,Zuarinagar Goa for his blessings, encouragement & moral support. I extend my heartfelt thanks to Dr. R.B.Patil, Principal, and the management of M.E.S. College of Arts & Commerce, Zuarinagar, Goa, for their wholehearted cooperation, constant encouragement and moral support. I am grateful to my teachers and former colleagues at MES College Shri S.N.D Poojary , Shri Manoj L. Pednecar and shri Vasant V. Sail, and also Shri B.V. Kolekar and Vice Principal Dr. Mrs Rekha R. Gaonkar for their constant encouragement and moral support. I am indebted to my fellow researchers in the Department of Commerce, Goa University for their timely support. Special thanks to Mrs. Sheetal D. Arondekar and Shri Atmaram Tarpe for their cooperation. I express my gratitude to Shree Shyam Satardekar and Arvind Korgaonkar, M.E.S. College. I am grateful to Dr. Mubarak Khan, President of Khan’s Creation and Sushrut ENT Hospital & Research Centre, Talegao, Dabhade, Pune for being my source of inspiration and for developing positive attitude in me. VII I am indebted to my sister Dr.Sapna R. Parab, Prof. and Head, Consultant Dept. of ENT, MIMER Medical College, Talegao, Dabhade, Pune and Vice President of Khan’s Creation & consultant at Sushrut Hospital for going out of way and helping me on this subject outside her medical field. This research wouldn’t have been possible without the contribution of my parents and siblings. I am indebted to my mother Mrs. Subhadra Ramkrishna Parab and my uncle Shri Rama B. Raut for their blessings, constant encouragement and moral support. I appreciate my brother Advocate & Notary Sandip R. Parab, brother in law Shri Sunil R. Parab and my sister Mrs. Sandhya S. Parab, niece Aanushka S. Parab and my friends and well-wishers Shri Santosh A. Patil, Mrs Anubha D. Goswami, Shri Dayamoy Goswami, and Master Yash @lias Anish D Goswami and my life partner my husband Shri Digambar Sandip Shinde for their moral support and encouragement in completing this thesis. “A BIG THANK YOU TO ALL MY WELLWISHERS, MY STUDENTS AT M.E.S. COLLEGE AND THE ALMIGHTY GOD” MISS CHAMPA RAMKRISHNA PARAB VIII Table of Contents Chapter No. Contents Page No. Title page I Declaration III Certificate IV Acknowledgement V -VIII Table of Contents IX-XIV List of Tables XV-XX List of Figures XXI-XXII List of Abbreviations XXIII I INTRODUCTION 1-35 1.1 Background of the Study 1 Overview to Indian Banking Sector and 4 1.2 Context to the Research Problem 1.3 Statement of the Problem 8 1.4 Conceptual Framework 18 1.4.1 Asset Quality 18 1.4.2 Risk and its Categories 20 1.5 Research Questions 26 1.6 Research Objectives 28 1.7 Significance of the Study 29 1.8 Scope of the Study 31 1.9 Organization of the Study 32 1.10 Summary 35 II INDIAN BANKING SYSTEM 36-57 2.1 History of Banking in India 36 2.2 Classification of Assets 41 2.2.1 Health Code System 41 2.2.2 Prudential Norms 42 IX 2.3 Basel Accords 45 2.3.1 Basel I 46 2.3.2 Basel II 47 2.3.3 Basel III 50 2.4 Risk Management 50 2.4.1 Credit Risk Management 51 2.5 Summary 57 III LITERATURE REVIEW 58- 107 3.1 Review based on Quality of Assets and Non 59 Performing Assets 3.2 Review based on Determinants of Credit 70 Risks 3. 3 Review based on Effect of Credit Risk on the 86 Performance 3.4 Summary of Literature Review 103 3.5 Research Gap 105 3.6 Summary 106 IV DATA AND METHODOLOGY 108-173 4.1 Description of the Study Area 108 4.2 Data and Data Source 112 4.2.1 Data 112 4.2.2 Data Source 116 4.3 Period of Study 117 4.4 Sample Design and Selection Criteria 118 4.5 Data Collection and the Parameters 128 4.5.1 Parameters for analysing Quality of Assets 128 1 Gross NPAs to Gross Loans and Advances Ratio 128 2 Net NPAs to Net Advances Ratio 129 3 Loan Loss Provision to Total Loans Ratio 129 4 Ratio of GNPAs to Total Assets 130 5 Ratio of NNPAs to Total Assets 130 6 Total Investments to Total Assets Ratio 130 7 Slippage Ratio 131 4.5.2 Parameters for studying the Determinants of 131 Credit Risk A) Dependent Variable- Credit Risk 131 X i) Ratio of GNPA to Gross Loan 131 B) Independent Variables 131 1) Macroeconomic Indicators 131 I) Growth Rate of GDP 131 ii) Inflation Rate 132 iii) Unemployment Rate 133 iv) Exchange Rate 134 v) Interest Rate 134 2) Bank Specific Factors 135 I) Capital Adequacy Ratio 135 II) Loan Loss Provision to Total Loans 136 III) Operating Inefficiency 136 IV) Credit Growth 137 V) Size 138 VI) Ownership( Dummy Variable) 138 VII) Basel II Period ( Dummy Variable) 139 4.5.3 Parameters to study the impact of Credit 139 Risks on the Performance of Banks A) Dependent Variable -Performance 139 I) Return on Assets 139 II) Return on Equity 140 III) Net Interest Margin 140 B) Independent Variables 141 I) Loan Loss Provision to Gross Loans 141 II) Loan Loss Provision to Gross Non Performing 141 Assets III) Loan Loss Provision to Total Assets 142 IV) Gross Loans to Total Assets 142 V) Operating Expenses to Gross Loans 143 VI) Gross Non- Performing Assets to Gross Loans 143 VII) Capital Adequacy Ratio 144 VIII) Credit Deposit Ratio 145 IX) Control Variables 145 A) Deposits 145 B) Natural Logarithm of Total Assets 146 X) Dummy Variable- Basel II Period 147 4.6 Hypothesis 149 4.6.1
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