Determinants of Liquidity Risk and Credit Risk: An Empirical Study on Indian Banks

Abstract

Financial risk assessment and management in Indian banking is becoming increasingly important area of research for maintaining financial firmness. The liquidation of Lehman Brothers Bank in US in September, 2008 was found to be the major cause of financial crises in the economy, provoking a global credit crunch, thus restraining the financial growth to a large extend. The study attempted to identify and examine correlation between financial risk focusing mainly on liquidity and credit crises and factors affecting it. The research is descriptive and analytical in nature based on data collected from secondary sources. The target population includes involves scheduled commercial banks (public owned banks, private owned banks and foreign banks) operating in India. The sample is selected on the basis of availability of data for a constant duration. To test the proposed theoretical model which was based on conceptual framework laid down by RBI, panel data regression model is applied.