Professional management and sincere efforts towards upgrading Credit Risk Management (CRM) framework have gained reasonable pace in both the public and private sector banks alike. The present study, first of its kind, attempts to find the difference in the strength of overall CRM framework of private and public sector banks in India in quantitative terms and also identifies the specific CRM elements leading to such differences in their respective frameworks, if any. A mathematical evaluation tool, namely, CRM Index Score, comprising quantitative assessment of the current set of CRM practices relating to organization, policy and strategy, operations and systems at transaction level and operations and systems at portfolio level, the four basic elements of CRM framework, were deployed for making a comparative evaluation. The findings revealed that the strength of the overall CRM framework did not vary significantly between public and private sector banks as on the whole there existed very little difference in the scores of the public and private sector banks.

Various banking sector reforms in India initiated since the early 1990s have aimed at promoting flexibility, operational autonomy and competition in the system, and to raise the risk management practices in India to the international best practices. Prompted by the issue of principles for management of credit risk by Bank for International Settlements in 1999 and RBI guidance note on Credit Risk Management (CRM) in 2002, Indian scheduled banks have redesigned their CRM framework. Adding further impetus to these reforms, there has been a series of related events, including a rapid pace of product innovations, diversification into new geographical and product market areas and a stepped-up rate of credit intermediation (both in scope and pace). The net effect has been the development of more sophisticated practices/strategies/techniques/tools in the measurement and management of credit risk exposure in advances portfolio. These practices in totality comprise the CRM framework and need to be examined in depth to assess the strength of the CRM framework. As the loan transactions account for more than 50% of all banking activities, credit risk must be carefully managed by the banking sector (Karunakar et al., 2008). The CRM framework protects and adds value to the bank as an organization and to its shareholders as an investment since the banks are mainly in the business of managing credit risk. As advocated by Das and Ghosh (2007), of all the types of risks, credit risk is the most important one, and hence, the strength of the CRM framework underpins the very existence of the banking system. It has also been observed that unsound risk management practices governing bank lending played a central role in recent episodes of financial turmoil (Rahman et al., 2004; and Atikogullari, 2009). Professional management and sincere efforts towards upgrading the CRM framework have gained reasonable pace in both the public and private sector banks alike. The private sector banks that are generally known for technical and financial innovation have subjected public sector banks to new market disciplne.