Evaluating the Influence of Lending Procedures on Credit Risk Assessment in Private Sector Banks

Abstract

This study examines strategies to minimize credit risk associated with firm loans, focusing on effective risk management techniques. The research incorporates credit risk management theories and involves a sample of 265 bank loan customers in Bangalore, who provided insights through a structured questionnaire. Key factors analysed include loan defaults, credit risk, insurance charges, interest rates, credit scores, and documentation. Descriptive and correlation analyses were used to interpret the results. Findings reveal significant relationships between credit score, insurance charges, loan defaults, and interest rates when obtaining business loans. In addition, qualitative data from email conversations with customers offer deeper insights into their perspectives. Based on these findings, the study suggests that private sector banks enhance their credit risk management practices to mitigate the risks of defaults, which can negatively impact profitability. The research highlights key challenges within the case bank's current risk management strategies and offers recommendations for addressing these issues. Further research is recommended to explore the broader implications for credit risk management in private sector banks.