The Impact of Credit Risk on the Profitability of Bank

This paper is aimed at finding various factors that influence Credit risk and also find the impact of Credit risk on the profitability of the bank. Through vast literature review, various factors that influence Credit risk are identified as Nonperforming Asset ratio (NPA), Capital adequacy ratio (CAR), Loan to Deposit Ratio (LDR), Provision Coverage Ratio (PCR), Leverage Ratio (LR), and Problem Asset Ratio (PAR). Return on Equity (ROE) is determine as the indicator of profitability. The secondary data is collected from the Annual reports of the State Bank of India for fifteen years (2003-2004 to 2016-2017). The data is analysed using multiple regression, and describe through graph. The result showed that PAR and LR have significant, negative impact on ROE and other variables do not have significant impact on ROE. But overall credit risk has significant impact on profitability of State Bank. State bank of India faces credit risk due to inefficient Credit risk management. So it is advised to improve Credit risk management practices in State Bank of India. State Bank of India can minimise the Credit risk by reducing the Nonperforming assets and managing the leverage properl.