CONNECTING THE DOTS: A STUDY ON CREDIT RISK MANAGEMENT AND FINANCIAL PERFORMANCE AT THE DCCB, MAHABUBNAGAR

CHAKRAVARTHY VARE; PROF. I. ANAND PAWAR

CHAKRAVARTHY VARE DR B R AMBEDKAR OPEN UNIVERSITY
PROF. I. ANAND PAWAR Dr. B.R. Ambedkar Open University Hyderabad-500033. (TS) India

Keywords: Bivariate, Credit Risk, DCCB, Mahabubnagar, ROA, Z-score

Abstract

Purpose:The primary objective of this study was to comprehensively assess the credit risk management and financial performance of the District Cooperative Central Bank Ltd., Mahabubnagar (henceforth referred to as 'the DCCB'). The study aimed to concentrate on the interconnection between these two factors and thereby gain insights into how the credit risk management practices of the DCCB influence its financial stability and performance.

Methodology:In this study, a descriptive research approach is employed to examine the link between credit risk management and the financial performance of District Cooperative Central Bank Ltd., Mahabubnagar, Telangana. Data is extracted from the annual reports of DCCB, Mahabubnagar, covering the financial years 2018-19 to 2022-23. Key variables, including Altman's Z-score Model and the 'Working Capital to Total Assets Ratio' as an indicator of financial health, are analyzed. Bivariate correlation analysis is applied to assess the significance of the relationship between credit risk indicators and the proxy for financial performance, Return on Assets (ROA).

Findings:The DCCB maintains robust financial stability, consistently achieving Z-scores above 2.60, indicating a reduced risk of bankruptcy. Recent years have seen significant improvements in the DCCB's financial stability. The strong correlations observed between credit risk management ratios and profitability indicators emphasize the positive influence of effective credit risk management on the bank's overall financial performance. Furthermore, the study establishes a statistically significant link between higher Z-scores and improved Return on Assets (ROA), suggesting a lower bankruptcy risk associated with enhanced financial performance for the DCCB.

Conclusion: The DCCB demonstrates financial stability, indicating a reduced risk of bankruptcy. Recent improvements in stability, coupled with the strong correlation between Working Capital and ROA, underscore the effectiveness of the DCCB's credit risk management. These findings offer valuable guidance for the DCCB's financial strategies as it continues to pursue growth and success.

Author Biography

PROF. I. ANAND PAWAR, Dr. B.R. Ambedkar Open University Hyderabad-500033. (TS) India

Dean, Faculty of Commerce & Business Management Head, Dept of Business Management

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