CAMELS RATING MODEL FOR URBAN CO-OPERATIVE BANKS

Supervisory rating model based on CAMELS and a simplified rating model

based on CAEL were in vogue till recently for scheduled UCs respectively! A
system of classification of UCs into grades " and "# based on certain financial
parameters was also in place! "n order to bring about supervisory convergence
between urban co$operative ban%s and commercial ban%s& the rating models have
since been suitably revised and implemented from the inspection cycle beginning
March '(& )**+!
,ith the introduction of the revised rating model& the gradation system of UCs has
been dispensed with! -he revised CAMELS rating model& though an adaptation of the
CAMELS rating model for commercial ban%s& dose not unduly raise the bar in respect
of rated parameters in case of UCs vis$.$vis commercial ban%s& %eeping in view the
overall financial health& level of M"S and ris% management systems in place! /eeping
in view the present two$trac% regulatory approach& the revised CAMELS rating model
will be applicable to UCs with deposits of 0s!(** crore and above and a revisd
simplified version thereof would be applicable to UCs with deposits of less than
0s!(**& Each of the components vi1! Capital& Asset 2uality& Management Earnings&
Li3uidity and Systems and Control is to be rated on a scale of ( to (** in ascending
order of performance 3uality! 4or this purpose& different parameters have been
identified for each component! -he total mar%s obtained by a ban% against a
component would indicate the level of performance of the ban% in that area! -he ban%
will be assigned a composite rating on the basis of the weighted average of the ratings
of the components on a scale of A5 to 6 indicating decreasing order of
performance7increasing order of supervisory concerns!
*)! -he rating obtained by an Urban Co$operative an% would be conveyed to
the Chief E8ecutive 9ffice in a separate communication!
A brief write up on the salient features of the revised rating modules is as follows
Revised CAMELS rating Mde! "r UCBs#
A Supervisory 0ating Model based on CAMELS :similar to commercial ban%s; and a
simplified 0ating Model based on CAEL were in vogue for scheduled and non$
scheduled UCs respectively till )**< inspection cycle! A system of supervisory
grading of UCs into grades " to "# based on financial parameters vi1! C0A0& =et
=>A& =et >rofit and compliance with C007SL0 was also in place for both scheduled
and non$scheduled UCs! ,hile the supervisory rating of UCs was disclosed to be
oard level functionaries only& the grades were advisory to the ban%s concerned and
the 0Cs!
"n order to bring about supervisory and regulatory convergence between co$operative
and commercial ban%s& without missing out on the governance structure and the level
of M"S and ris% management systems obtaining in the UCs& the rating models for
UCs have been revised! -he revised rating model for UCs is on the lines of revised
model for commercial ban%s with suitable adaptation in the parameters rated so as not
to unduly raise the bar in respect of UCs vis$.$vis commercial ban%s %eeping in
view their overall financial health& the level of M"S and ris% management systems
prevailing! -hese apart& the dissimilarities in the structure of management& the si1e of
the regulated entities& the regulations presently applicable to them& the level of use of
ban%ing technology& etc! have been ta%en into account while adapting the model!
Suitable modification have been made ta%ing into account the fact that UCBs$ as
%&'ared t %&&er%ia! (an)s$ *ave !arger average grss and net NPAs$
'arti%+!ar!, *ard%re NPAs and *ig*er %st-in%&e ratins!
Under the management head& suitable adaptation has been made %eeping in view the
election on democratic principles and corporate governance aspects obtaining in the
UC sector! Suitable modifications have also been made under the head Management
for UCs wor%ing under Administrators& where the oards have been superseded! :A
significant number of UCs are functioning under Administrators& their oards
having been superseded due to various reasons;!
/eeping in view the present two$trac% regulatory approach& the revised CAMELS
model& which is more a%in to the revised model for commercial ban%s& would be
adopted for with deposits of 0s!(**! crore and above and the revised simplified
version thereof would be adopted for UCs with deposits of less than 0s!(** crore!
All UCs with deposits of 0s!(** crore and above would be brought under ALM
discipline! -he revised rating model applicable to UCs from the inspection cycle
beginning from the year April )**+! i!e with reference to their financial position as on
March '(& )**+ and the e8isting grading system was dispensed with!
Under the revised rating models& each of the components is rated on a scale of ( to
(** in ascending order of performance 3uality! 4or this purpose& different parameters
have been identified for each component! Each parameter or sub$parameter is allotted
mar%s based on distribution of mar%s! -he total mar%s obtained by a ban% against a
component indicate the level of performance of the ban% in the area! -he ban% is
assigned a composite rating on the basis of weighted average of the rating of the
components on a scale of A5 to 6 indicating order of performance 7 increasing order
of supervisory concerns!