Credit Risk Management Practices in Indian Public and Private Sector Banks: A Literature Review of Select Papers

Abstract

Purpose: This study critically examines credit risk management (CRM) practices in Indian public and private sector banks. It identifies key drivers of non-performing assets (NPAs) , compares ownership-based performance differences and evaluates the role of traditional and emerging AI and ML-based risk-management tools in enhancing banking stability.

Design/Methodology/Approach: A literature review was conducted of 37 selected research papers published between 2021 and 2025, from academic databases such as Scopus and Google Scholar, covering causes of credit risk, NPA management, comparative performance of public vs. private banks, credit risk measuring models and the incorporation of machine learning and explainable AI techniques.

Findings: In terms of asset quality, profitability, growth, operational effectiveness, and credit risk management techniques, private sector banks routinely outperform public sector banks while having lower non-performing assets (NPA) levels. Willful defaults, priority-sector lending, capital diversion, and macroeconomic shocks are the main causes of credit risk, which is still present today. Capital adequacy, liquidity, market discipline, and optimal earnings quality serve as effective buffers. Mergers improve solvency but not always efficiency. The Insolvency and Bankruptcy Code (IBC) has accelerated NPA resolution since 2018. Artificial Intelligence (AI), big data, ensemble models, and XAI (LIME/SHAP) greatly boost predictive models tailored to India for assessment of creditworthiness and default probability estimation are still in the developing stage.

Originality/Value: This review consolidates fragmented evidence into a cohesive framework which provides the most updated synthesis of ownership-wise CRM effectiveness in Indian banking highlights critical research gaps specially India-centric predictive and behavioral models and offers actionable implications for regulators, bankers and scholars in the post-digital and IBC era.

Paper Type: Review of Literature