An Explorative Study of an ‘Alternative Mechanism’ in the Current Practice of Credit Analysis in Indian Banks to Safeguard Public Money

Abstract

The Indian banking sector has transformed significantly since liberalisation, yet persistent vulnerabilities remain in the form of non-performing assets (NPAs), fraud and elevated credit risk. While gross NPAs of scheduled commercial banks reached a multi-year low of 2.8% in March 2024 (Reserve Bank of India, 2024, Global and Indian financial stability reports), the stock of stressed assets and the rising number of fraud cases continue to challenge financial stability. This article conducts a comparative analysis of six major banks—SBI, PNB, HDFC Bank, ICICI Bank, HSBC and Standard Chartered—representing public, private and foreign segments. Using 10 years of secondary data from RBI reports, bank disclosures and policy documents, the study examines asset growth, credit exposure, NPA trajectories, fraud patterns and prevailing credit appraisal practices. Findings indicate that public banks carry higher and more volatile NPAs, private banks face rising digital fraud and foreign banks maintain lower NPAs with stronger recovery performance. The study identifies key gaps in conventional credit assessment frameworks, particularly the limited emphasis on behavioural, social and ethical borrower dimensions. It proposes a supplementary Social-Behavioural Scorecard integrating behavioural analytics, psychometric assessment and Environmental, Social and Governance (ESG)-linked indicators. The article argues that combining this mechanism with AI-enabled credit models can enhance early-warning capabilities and improve the safeguard of public funds.