Quality of Leading Vs. Credit Risk

Abstract

'Quality of Credit' and 'Credit Risk' is interrelated. Credit Risk is inversely proportionate to Quality of lending. Credit Risk will decrease, if Quality of lending increases and vice versa. Due to poor quality of lending, banking industry is suffering with huge Non-performing Assets (NPAs). Thereby higher provisions for NPAs, lower profits, additional capital to maintain CRAR and decrease in rating of the bank etc are the side effects of poor quality of credit or lending. Instead of putting more efforts on side effects of Credit Risk like providing more provisions, decrease in net profit and net worth, attracting more Tier-I and Tier-II Capital to maintain the required CRAR etc., banks should give more focus on 'Quality of Lending'. This is only one way or remedy or best solution to overcome all problems relates to the Credit Risk in the Banks. 'Quality Control' of each and every step of credit delivery process is the need of hour to mitigate the credit risk in the banks.