Author(s): Ruby Sharma, Pallavi Pahuja*, Aaruni Batta, Radhika Giri, Rajesh Jhamb
This study investigates the factors influencing risk management practices within the commercial banking sector, encompassing both public and private institutions. Primary data were collected via a structured questionnaire administered to 540 bankers. The research instrument assessed five critical dimensions of the risk management process: (i) Understanding Risk and Risk Management; (ii) Risk Identification; (iii) Risk Assessment and Analysis; (iv) Risk Monitoring; and (v) overall Risk Management Practices. Structural Equation Modeling (SEM) was employed to test the hypothesized relationships. The findings reveal that all examined risk-related factors understanding risk, risk monitoring, risk identification, and risk assessment & analysis exert a statistically significant positive effect on the risk management practices of banks. The SEM analysis further identifies Understanding Risk and Risk Management (URRM) and Risk Monitoring (RM) as the most significant determinants. The proposed model demonstrates a good fit, explaining approximately 65% of the variance in the observed risk management practices. This indicates that the integrated aspects of the risk management process substantially shape how banks implement their risk management frameworks. The study concludes that enhancing foundational risk comprehension and strengthening continuous monitoring mechanisms are paramount for advancing risk management efficacy in the banking industry.