Banks in their role as financial intermediaries take considerable financial risks. But the global financial meltdown has changed the banking scenario. Banks are taking utmost care in lending and investment in securities to maintain liquidity and manage the risk in assets portfolio. This paper investigates the impact of portfolio risk and other bank-level factors on the performance of scheduled commercial banks in India through a panel data study during the period 1997-2009. The results suggest that there is a significant impact of portfolio risk on the performance of banks. It means banks which are having more risk in their assets portfolio are enjoying high Return on Assets (ROA). Similarly, Capital to Risk-Weighted Assets Ratio (CRAR), Non-Interest Income (NII), and Net Interest Margin (NIM) make a significant contribution in improving the profitability of banks.

Power systems in general contain a large number of generators, transformers and Banking is a dynamic industry. Banks have to grow in the present competitive environment to retain their existing market share. Growth has to be supplemented by risk-based credit decisions and also by risk-based pricing. Banks have to be put under risk-based internal audit especially when risk-based supervision is undertaken by the regulator. Banks are known for taking risk to expand the business. The basic business concept is embedded in the axiom ‘no risk, no profit’. However, the statement, ‘higher the risk, higher the profit’, may not hold good all the time. Since risk taking is a part of the banker’s business, it will be prudent to identify or at least try to identify and understand the risks that exist in every transaction. Any practicing banker will know, the risks when translated into reality will straightaway hit the profit and loss account on the debit side. There is, unfortunately, no provision to shift the securities from one category to another on a daily basis. Any risk cannot be mitigated or managed without its identification and measurement. Portfolio risk is measured by Risk-Weighted Assets (RWA) in the total assets of the bank. However, higher portfolio risk has a negative impact on the capital and solvency position of the bank.

Capital adequacy is an indicator of the financial health of the banking system. It is measured by the Capital to Risk-Weighted Assets Ratio (CRAR), defined as the ratio of a bank’s capital to its total RWA. Financial regulators generally impose a capital adequacy norm on their banking and financial systems in order to provide a buffer to absorb unforeseen losses due to risky investments. A well adhered to capital adequacy regime does play an important role in minimizing the cascading effects of banking and financial sector crises. The management of portfolio risk has become important because capital adequacy requirements of the banks depend upon the proportion of portfolio risk in the asset portfolio. The higher the portfolio risk, the higher is the capital required in business. Therefore, the banks which have effective risk management system will survive in the market in the long run. The effective management of credit and market risks is a critical component of comprehensive risk management essential for long-term success of a banking institution. The present study deals with the risk taking behavior of scheduled commercial banks on performance.

Bank Management Journal, Indian Banks, Asset Liability Management, Data Filtering, Least Absolute Deviation, Decision-Making Group, Commercial Banks, Ordinary Least Square, Banking Industry, Kenyan Banks, Least Squares Regression, Mutual Fund Industry, Linear Programming, Financial Markets, Capital Required Adequacy Ratio, Public Sector Banks.