TABLE OF CONTENT

Sr No. Particulars Page No.

1 Acknowledgement 2
2 Preface 3
3 Executive Summary 4
4 Chpater-1 5-12
Introduction
Banking Reforms
Introduction to Basel
Framework

5 Chpater-2 Industry Profile 13-21

ICICI Bank
HDFC Bank
SBI Bank
BOB Bank
6 Chapter-3 CAMELS Framework 22-34
7 Chapter-4 Research Methodology 35-38
8 Chapter-5 Data Analysis and 39-60
Interpretation
9 Chapter-6 Conclusion 61-64
Findings
Recommendation
Recommendation for future
study
10 Webography 65

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 ACKNOWLEDGEMENT

Words are the dress of thoughts, appreciating and acknowledging those who
are responsible for successful completion of the project. Our sincerity gratitude
goes to Prof. Hiral Parikh who helped us to work on this project and provided us
all the help, guidance and encouragement to complete this project. The
encouragement and guidance given by her have made this a personally rewarding
experience. We thank her for her support and inspiration, without which,
understanding the intricacies of the project would have been exponentially
difficult. We are sincerely grateful to K.S. School Of Business Management who
provided us the opportunity and inspiration needed to prepare this report in
congenial manner.

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 PREFACE

We know that the project is for the development and enhancement of the
knowledge field. It can never be possible to make a mark in todays competitive
era only with theoretical knowledge when industries are developing at global level,
practical knowledge of administration and management of business is very
important. Banks used the Internet technology as a strategic weapon to
revolutionize the way they operate, deliver, and compete against each other.
Although a complete turnaround in banking sector performance is not expected till
the completion of reforms, signs of improvement are visible in some indicators
under the CAMEL framework. Under this bank is required to enhance capital
adequacy, strengthen asset quality, improve management, increase earnings and
reduce sensitivity to various financial risks. Amongst these reforms and
restructuring the CAMELS Framework has its own contribution to the way modern
banking is looked up on now. The attempt here is to see how various ratios have
been used and interpreted to reveal a banks performance and how this particular
model encompasses a wide range of parameters making it a widely used and
accepted model in todays scenario. Simple language has been used throughout the
report. Report is illustrated with figure, charts and diagrams as and when required.

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 EXECUTIVE SUMMARY

In todays scenario, the banking sector is one of the fastest growing sector
and a lot of funds are invested in Banks. Also todays banking system is becoming
more complex. So, we thought of evaluating the performance of the banks. There
are so many models of evaluating the performance of the banks, but we have
chosen the CAMELS Model to evaluate the performance of the banks. We found it
the best model because it measures the performance of the banks from each
parameter i.e. Capital, Assets, Management, Earnings and Liquidity. After deciding
the model, we have decided to take two public bank and two private bank for
comparison. We have collected annual reports of all the banks. And we have
calculated ratios for all the banks and interpreted them. After that we have given
rank to each parameter of the CAMELS Model. According to their importance and
our understandings, we have allocated ranks for each ratio. On the basis of total
derived, we have given ranking to the banks. Ranking as per our analysis,

1. ICICI Bank

2. State Bank of India

3. Bank of Baroda

4. HDFC Bank

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CAMELS FRAMEWORK
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 INTRODUCTION

The economic development of a country depends more on real factors such

as the industrial growth & development, modernization of agriculture, expansion
of internal trade and foreign trade. The role and importance of banking sector and
the monetary mechanism cannot be under-estimated in the development of a
nation. Hence the banks and financial institutions play significant and crucial role
by contributing in Economic planning such as lying down of specific goals and
allocating particular amount of money that constitute the economic policy of the
government. A sound banking industry comprises a paramount component of the
financial services sector. Performance of the banking sector is an effective measure
and indicator to check the performance of any economy to a large extent. The
banking sectors performance is perceived as the replica of economic activities of
the economy as a healthy banking system plays as the bedrock of economic, social
and industrial growth of an economy. Banking system in our economy has been
allotted a crucial and noteworthy role in financing the planned economic growth.

Banks are playing crucial and significant role in the economy in capital
formation due to the inherent nature, therefore banks should be given more
attention than any other type of economic unit in an economy. Evaluation of
financial performance of the banking sector is an effective measure and indicator to
check the soundness of economic activities of an economy. The banking sectors
performance is perceived as the replica of economic activities of the economy. The
stage of development of the banking industry is a good reflection of the
development of the economy. There is a substantial improvement over the earlier
supervisory system of banking sector in terms of recovery, management efficiency,
assets quality, earning quality and internal control system to regulate the level of
risk and financial viability of commercial banks. The regulators have augmented
bank supervision by using CAMEL (capital adequacy, asset quality, management
quality, earnings and liquidity) rating criterion to assess and evaluate the
performance and financial soundness of the activities of the bank. The CAMEL
supervisory criterion in banking sector is a significant and considerable
improvement over the earlier criterions in terms of frequency, check, spread over
and concentration. During this period, the banking sector has experienced a
paradigm change and it was the time to make performance appraisal of operations.
Reserve Bank of India recommended supervisory rating model named as
CAMELS(Capital Adequacy, Assets Quality, Management, Earning, Liquidity,
Systems and Controls) for rating of Indian commercial Banks and Foreign Banks
operating in India.

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 THE BANKING REFORMS

In 1991, the Indian economy went through a process of economic

liberalization, which was followed up by the initiation of fundamental reforms in
the banking sector in 1992.The banking reform package was based on the
recommendations proposed by the Narasimham Committee Report (1991) that
advocated a move to a more market oriented banking system, which would operate
in an environment of prudential regulation and transparent accounting. One of the
primary motives behind this drive was to introduce an element of market discipline
into the regulatory process that would reinforce the supervisory effort of the
Reserve Bank of India (RBI). Market discipline, especially in the financial
liberalization phase, reinforces regulatory and supervisory efforts and provides a
strong incentive to banks to conduct their business in a prudent and efficient
manner and to maintain adequate capital as a cushion against risk exposures.
Recognizing that the success of economic reforms was contingent on the success
of financial sector reform as well, the government initiated a fundamental banking
sector reform package in 1992.

Banking sector, the world over, is known for the adoption of

multidimensional strategies from time to time with varying degrees of success.
Banks are very important for the smooth functioning of financial markets as they
serve as repositories of vital financial information and can potentially alleviate the
problems created by information asymmetries. From a central banks perspective,
such high-quality disclosures help the early detection of problems faced by banks
in the market and reduce the severity of market disruptions. Consequently, the RBI
as part and parcel of the financial sector deregulation, attempted to enhance the
transparency of the annual reports of Indian banks by, among other things,
introducing stricter income recognition and asset classification rules, enhancing the
capital adequacy norms, and by requiring a number of additional disclosures
sought by investors to make better cash flow and risk assessments.

During the pre-economic reforms period, commercial banks & development

financial institutions were functioning distinctly, the former specializing in short &
medium term financing, while the latter on long term lending & project financing.

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 Commercial banks were accessing short term low cost funds through savings
investments like current accounts, savings bank accounts & short duration fixed
deposits, besides collection float. Development Financial Institutions (DFIs) on the
other hand, were essentially depending on budget allocations for long term lending
at a concessionary rate of interest.

The scenario has changed radically during the post reforms period, with the
resolve of the government not to fund the DFIs through budget allocations. DFIs
like IDBI, IFCI &ICICI had posted dismal financial results. Infect, their very
viability has become a question mark. Now, they have taken the route of reverse
merger with IDBI bank &ICICI bank thus converting them into the universal
banking system.

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 INTRODUCTION TO BASEL II ACCORD

Bank capital framework sponsored by the world's central banks designed to

promote uniformity, make regulatory capital more risk sensitive, and promote
enhanced risk management among large, internationally active banking
organizations. The International Capital Accord, as it is called, will be fully
effective by January 2008 for banks active in international markets. Other banks
can choose to "opt in," or they can continue to follow the minimum capital
guidelines in the original Basel Accord, finalized in 1988. The revised accord
(Basel II) completely overhauls the 1988 Basel Accord and is based on three
mutually supporting concepts, or "pillars," of capital adequacy. The first of these
pillars is an explicitly defined regulatory capital requirement, a minimum capital-
to-asset ratio equal to at least 8% of risk-weighted assets. Second, bank
supervisory agencies, such as the Comptroller of the Currency, have authority to
adjust capital levels for individual banks above the 8% minimum when necessary.
The third supporting pillar calls upon market discipline to supplement reviews by
banking agencies.

Basel II is the second of the Basel Accords, which are recommendations on

banking laws and regulations issued by the Basel Committee on Banking
Supervision. The purpose of Basel II, which was initially published in June 2004,
is to create an international standard that banking regulators can use when creating
regulations about how much capital banks need to put aside to guard against the
types of financial and operational risks banks face. Advocates of Basel II believe
that such an international standard can help protect the international financial
system from the types of problems that might arise should a major bank or a series
of banks collapse. In practice, Basel II attempts to accomplish this by setting up
rigorous risk and capital management requirements designed to ensure that a bank
holds capital reserves appropriate to the risk the bank exposes itself to through its
lending and investment practices. These rules mean that the greater risk to which
the bank is exposed, the greater the amount of capital the bank needs to hold to
safeguard its solvency and overall economic stability.

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Main Aim for Basel II Accord:

1. Ensuring that capital allocation is more risk sensitive.

2. Separating operational risk from credit risk

3. Attempting to align economic and regulatory capital more closely to reduce the
scope for regulatory arbitrage. Basel II has largely left unchanged the question of
how to actually define bank capital, which diverges from accounting equity in
important respects. The Basel I definition, as modified up to the present, remains in
place.

The Accord in operation Basel II uses a"three pillars"concept

1. Minimum capital requirements (addressing risk),

2. Supervisory review and
3. Market discipline to promote greater stability in the financial system.

The Three Pillars of Basel II

The Basel I accord dealt with only parts of each of these pillars. For example: with
respect to the first Basel II pillar, only one risk, credit risk, was dealt with in a
simple manner while market risk was an afterthought; operational risk was not
dealt with at all.

The First Pillar

The first pillar deals with maintenance of regulatory capital calculated for
three major components of risk that a bank faces: credit risk, operational risk and
market risk. The credit risk component can be calculated in three different ways
namely standardized approach, Foundation IRB and Advanced IRB. IRB stands for
"Internal Rating-Based Approach".

For operational risk, there are three different approaches basic indicator
approach or BIA, standardized approach or TSA, and advanced measurement
approach or AMA. For market risk the preferred approach is VAR (value at risk).
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As the Basel II recommendations are phased in by the banking industry it will
move from standardized requirements to more refined and specific requirements
that have been developed for each risk category by each individual bank. The
upside for banks that do develop their own risk measurement systems is that they
will be rewarded with potentially lower risk capital requirements. In future there
will be closer links between the concepts of economic profit and regulatory capital.

Credit Risk can be calculated by using one of three approaches

1. Standardized Approach

2. Foundation IRB (Internal Ratings Based) Approach

3. Advanced IRB Approach. The standardized approach sets out specific risk
weights for certain types of credit risk. The standard risk weight categories are
used under Basel 1 and are 0% for short term government bonds, 20% for
exposures to OECD Banks, 50% for residential mortgage sand 100% weighting on
commercial loans. A new 150% rating comes in for borrowers with poor credit
ratings. The minimum capital requirement (the percentage of risk weighted assets
to be held as capital) is remained at 8%. For those Banks that decide to adopt the
standardized ratings approach they will be forced to rely on the ratings generated
by external agencies. Certain Banks are developing the IRB approach as a result.

The Second Pillar

The second pillar deals with the regulatory response to the first pillar, giving
regulators much improved 'tools' over those available to them under Basel I. It also
provides a framework for dealing with all the other risks a bank may face, such as
systemic risk, pension risk, concentration risk, strategic risk, reputation risk,
liquidity risk and legal risk, which the accord combines under the title of residual
risk. It gives banks a power to review their risk management system.

The Third Pillar

The third pillar greatly increases the disclosures that the bank must make.
This is designed to allow the market to have a better picture of the overall risk
position of the bank and to allow the counterparties of the bank to price and deal
appropriately. The new Basel Accord has its foundation on three mutually
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reinforcing pillars that allow banks and bank supervisors to evaluate properly the
various risks that banks face and realign regulatory capital more closely with
underlying risks. The regulatory capital will be focused on these three risks. The
second pillar gives the bank responsibility to exercise the best ways to manage the
risk specific to that bank. It also casts responsibility on the supervisors to review
and validate banks risk measurement models. The third pillar on market discipline
is used to leverage the influence that other market players can bring. This is aimed
at improving the transparency in banks and improves reporting.

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CAMELS FRAMEWORK
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History
ICICI Bank (Industrial Credit and Investment Corporation of India) is
an Indian multinational banking and financial services company. ICICI Bank was
originally promoted in 1994 by ICICI Limited, an Indian financial institution, and
was its wholly-owned subsidiary.

ICICI was formed in 1955 at the initiative of the World Bank, the
Government of India and representatives of Indian industry. The principal
objective was to create a development financial institution for providing medium-
term and long-term project financing to Indian businesses.

In the 1990s, ICICI transformed its business from a development financial

institution offering only project finance to a diversified financial services group
offering a wide variety of products and services, both directly and through a
number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the
first Indian company and the first bank or financial institution from non-Japan Asia
to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the

context of the emerging competitive scenario in the Indian banking industry, and
the move towards universal banking, the managements of ICICI and ICICI Bank
formed the view that the merger of ICICI with ICICI Bank would be the optimal
strategic alternative for both entities, and would create the optimal legal structure
for the ICICI group's universal banking strategy. The merger would enhance value
for ICICI shareholders through the merged entity's access to low-cost deposits,
greater opportunities for earning fee-based income and the ability to participate in
the payments system and provide transaction-banking services. The merger would
enhance value for ICICI Bank shareholders through a large capital base and scale
of operations, seamless access to ICICI's strong corporate relationships built up
over five decades, entry into new business segments, higher market share in
various business segments, particularly fee-based services, and access to the vast
talent pool of ICICI and its subsidiaries.

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 In October 2001, the Boards of Directors of ICICI and ICICI Bank approved
the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI
Personal Financial Services Limited and ICICI Capital Services Limited, with
ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank
in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and
by the High Court of Judicature at Mumbai and the Reserve Bank of India in April
2002. Consequent to the merger, the ICICI group's financing and banking
operations, both wholesale and retail, have been integrated in a single entity.

ICICI Group Companies

ICICI Group
ICICI Prudential Life Insurance Company
ICICI Securities
ICICI Lombard General Insurance Company
ICICI Prudential AMC & Trust
ICICI Venture
ICICI Direct
ICICI Foundation
Disha Financial Counselling

ICICI Bank also has banking subsidiaries in UK and Canada.

Products and Services

ICICI provides number of services like

Personal Banking,
Privilege Banking,
Wealth Banking,
Private Banking,
NRI Banking,
Corporate Banking and
Business Banking.

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History
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an 'in principle' approval from the Reserve Bank of
India (RBI) to set up a bank in the private sector, as part of RBI's liberalisation of
the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in
the name of 'HDFC Bank Limited', with its registered office in Mumbai, India.
HDFC Bank commenced operations as a Scheduled Commercial Bank in January
1995.

HDFC is India's premier housing finance company and enjoys an impeccable track
record in India as well as in international markets. Since its inception in 1977, the
Corporation has maintained a consistent and healthy growth in its operations to
remain the market leader in mortgages. Its outstanding loan portfolio covers well
over a million dwelling units. HDFC has developed significant expertise in retail
mortgage loans to different market segments and also has a large corporate client
base for its housing related credit facilities. With its experience in the financial
markets, strong market reputation, large shareholder base and unique consumer
franchise, HDFC was ideally positioned to promote a bank in the Indian
environment.

HDFC Group

HDFC Ltd

HDFC Securities

HDFC Mutual Fund

HDFC Realty

HDFC Life

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 HDFC ERGO

HDFC Pension

HDB Financial Services

Products and services

HDFC Bank is market leader in e-commerce.

HDFC Bank provides a series of digital offerings like

10 second personal loan,

Chillar,
PayZapp,
SME Bank,
Watch Banking,
30-Minute Auto Loan,
15-minute Two-Wheeler Loan,
e-payment gateways,
Digital Wallet, etc.

HDFC Bank provides a number of products and services which includes

wholesale banking, Retail banking, Treasury, Auto (car) Loans, Two Wheeler
Loans, Personal loans, Loan against Property and Credit Cards.

The latest entry in the league is 'Project AI', under which HDFC Bank,
would deploy robots at select bank branches. These robots will offer options such
as cash withdrawal or deposit, forex, fixed deposits and demat services displaying
on the screen to persons coming into the branch.

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History
The roots of the State Bank of India lie in the first decade of the 19th
century, when the Bank of Calcutta, later renamed the Bank of Bengal, was
established on 2 June 1806. The Bank of Bengal was one of three Presidency
banks, the other two being the Bank of Bombay and the Bank of Madras. All three
Presidency banks were incorporated as joint stock companies and were the result
of royal charters. These three banks received the exclusive right to issue paper
currency till 1861 when, with the Paper Currency Act, the right was taken over by
the Government of India. The Presidency banks amalgamated on 27 January 1921,
and the re-organised banking entity took as its name Imperial Bank of India. The
Imperial Bank of India remained a joint stock company but without Government
participation.
Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve
Bank of India, which is India's central bank, acquired a controlling interest in the
Imperial Bank of India. On 1 July 1955, the imperial Bank of India became the
State Bank of India. In 2008, the Government of India acquired the Reserve Bank
of India's stake in SBI so as to remove any conflict of interest because the RBI is
the country's banking regulatory authority.

ASSOCIATE BANKS

State Bank of India has the following five Associate Banks (ABs) with
controlling interest ranging from 75.07% to 100%.

State Bank of Bikaner and Jaipur (SBBJ)

State Bank of Hyderabad (SBH)

State Bank of Mysore (SBM)

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 State Bank of Patiala (SBP)

State Bank of Travancore (SBT)

PRODUCTS AND SERVICES

SBI offers a number of product and services which includes Personal banking,
Agriculture or Rural banking, International banking, Corporate banking, NRI
Services, and SME.
Working Capital Finance
Project Finance
Deferred Payment Guarantees
Corporate Term Loans
Structured Finance
Dealer Financing
Channel Financing
Equipment Leasing
Loan Syndication
Financing Indian Firms Overseas Subsidiaries or JVs
Construction Equipment Loan

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History
Bank of Baroda is an Indian state-owned International banking
and financial services company.The bank was founded by the Maharaja of
Baroda, Maharaja SayajiraoGaekwad III on 20 July, 1908 in the Princely
State of Baroda, in Gujarat The bank, along with 13 other major commercial banks
of India, was nationalized on 19 July 1969, by the Government of India and has
been designated as a profit-making public sector undertaking (PSU).

As many as 10 banks have been merged with Bank of Baroda.

Hind Bank Ltd (1958)

New Citizen Bank of India Ltd (1961)

Surat Banking Corporation (1963)

Tamil Nadu Central Bank (1964)

Umbergaon People Bank (1964)

Traders Bank Limited (1988)

Bareilly Corporation Bank Ltd (1998)

Benares State Bank Ltd (2002)

South Gujarat Local Area Bank Ltd (2004)

Memon Cooperative Bank Limited (2011)

In 1908, Maharaja SayajiraoGaekwad III set up the Bank of Baroda (BoB), with
other stalwarts of industry such as SampatraoGaekwad, Ralph
Whitenack, VithaldasThakersey, TulsidasKilachand and NM Chokshi. Two years
later, BoB established its first branch inAhmedabad. The bank grew domestically
until after World War II. Then in 1953 it crossed the Indian Ocean to serve the
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communities of Indians and Indians in Uganda by establishing a branch each
in Mombasa and Kampala. The next year it opened a second branch in Kenya,
in Nairobi, and in 1956 it opened a branch in Tanzania at Dar-es-Salaam. Then in
1957 BoB took a giant step abroad by establishing a branch in London. London
was the center of the British Commonwealth and the most important international
banking center. In 1958 BoB acquired Hind Bank (Calcutta; est. 1943), which
became BoB's first domestic acquisition.

Subsidiaries

BOB Capital Markets (BOBCAPS) is a SEBI-registered investment

banking company based in Mumbai, Maharashtra. It is a wholly owned subsidiary
of Bank of Baroda. Its financial services portfolio includes initial public
offerings, private placement of debts, corporate restructuring, business valuation,
mergers and acquisition, project appraisal, loan syndication, institutional equity
research, and brokerage.

Bobcards Ltd is a credit card company, 100% subsidiary of Bank of Baroda.

The company is in the business of Credit cards, Acquiring Business & back end
support for Debit cards operations to Bank of Baroda. Bank of Baroda had
introduced its first charged card named BOBCARD in the year 1984. The whole
operation of this plastic card was managed by Credit card division of Bank of
Baroda. It established a wholly owned subsidiary, Bobcards Limited in the year
1994 to cater to the need of rapidly growing credit card industry in a focused
manner. BOBCARDS Ltd is the first Non-banking company in India issuing credit
cards

Products and services

Bank of Baroda provides number of services like Credit Cards, Consumer

Banking, Banking, Corporate Banking, International Banking, MSME Banking,
Rural Banking, NRI Business, Treasury, Insurance, Investment Banking,Mortgage
Loans, Private Banking, Private Equity, and Wealth Management.

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CAMELS FRAMEWORK
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 OVERVIEW OF CAMELS RATING SYSTEM

Camels rating system is a common phenomenon for all banking system all
over the world. It is used in all over the country in the world. It is mainly used to
measure a ranking position of a bank on the basis of few criteria. Camels rating
system is an international bank-rating system where bank supervisory authorities
rate institutions according to six factors. The six factors are represented by the
acronym "CAMELS".

The six factors examined are as follows:

C - Capital adequacy

A - Asset quality

M - Management quality

E - Earnings

L - Liquidity

S - Sensitivity to Market Risk.

Bank supervisory authorities assign a score on a scale of one (best) to five

(worst) for each factor to each bank. If a bank has an average score less than two it
is considered to be a high-quality institution, while banks with scores greater than
three are considered to be less-than-satisfactory establishments. The system helps
the supervisory authority identify banks that are in need of attention.

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 ORIGIN OF CAMELS RATING SYSTEM

There were many banks rating system available in the world. However,
Camels rating system is the most successful bank rating system in the world. The
Uniform Financial Institutions Rating System (UFIRS) was created in 1979 by
the bank regulatory agencies. Under the original UFIRS a bank was assigned
ratings based on performance in five areas: the adequacy of Capital, the quality of
Assets, the capability of Management, the quality and level of Earnings and the
adequacy of Liquidity. Bank supervisors assigned a 1 through 5 rating for each of
these components and a composite rating for the bank. This 1 through 5 composite
rating was known primarily by the short form CAMEL.

A bank received the CAMEL rate 1 or 2 for their sound or good performance
in every respect of criteria. The bank which exhibited unsafe and unsound practices
or conditions, critically deficient performance received the CAMEL rate 5 and that
bank was of the greatest supervisory concern.

While the CAMEL rating normally bore close relation to the five component
ratings, it was not the result of averaging those five grades. Supervisors consider
each institutions specific situation when weighing component ratings and review
all relevant factors when assigning ratings to a certain extent. The process and
component and composite system exist similar for all banking companies.

In 1996, the UFIRS was revised and CAMEL became CAMELS with the
addition of a component grade for the Sensitivity of the bank to market risk.
Sensitivity is the degree to which changes in market prices such as interest rates
adversely affect a financial institution. The communication policy for bank ratings
was also changed at end of 1996. Starting in 1997, the supervisors were to report
the component rating to the bank. Prior to that, supervisors only reported the
numeric composite rating to the bank.

CAMELS is basically a ratio-based model for evaluating the performance of

banks. Various ratios forming this model are as follows.

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 PROCESS OF CAMELS RATING SYSTEM

The reporting process of CAMELS rating is given below.

1. Data collection of reschedule status of overdue loans from CRM, Retail, &
SME.

2. Data collection of lending rates and deposit rates from Treasury.

3. Data collection of average borrowed amount and rate of interest expenses from
Treasury.

4. Data collection of maturity wise investments from Treasury.

5. Collect information of training programs arranged by the Banks training

institute from Human Resources Division.

6. Collection of other required reports and statements from other divisions.

7. Preparation of CAMELS report as per guideline of BB & Core Risk

Management Guidelines.

8. Meeting arranged with MANCOM.

9. Necessary changes are made and report is submitted to BB.

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 C- CAPITAL ADEQUACY

Capital base of financial institutions facilitates depositors in forming their

risk perception about the institutions. Also, it is the key parameter for financial
managers to maintain adequate levels of capitalization. Moreover, besides
absorbing unanticipated shocks, it signals that the institution will continue to honor
its obligations. The most widely used indicator of capital adequacy is capital to
risk-weighted assets ratio (CRWA). According to Bank Supervision Regulation
Committee (The Basle Committee) of Bank for International Settlements, a
minimum 9 per cent CRWA is required.

Capital adequacy ultimately determines how well financial institutions can

cope with shocks to their balance sheets. Thus, it is useful to track capital-
adequacy ratios that take into account the most important financial risksforeign
exchange, credit, and interest rate risksby assigning risk weightings to the
institutions assets.

A sound capital base strengthens confidence of depositors. This ratio is used

to protect depositors and promote the stability and efficiency of financial systems
around the world.

Capital adequacyultimately determines how well financial institutions can

cope with shocks to their balance sheets. Thus, it is useful to track capital-
adequacy ratios that take into account themost important financial risksforeign
exchange, credit, and interest rate risksbyassigning risk weightings to the
institutions assets.Capital cushions fluctuations in earnings so that credit unions
can continue to operate in periods of loss or negligible earnings. It also provides a
measure of reassurance to themembers that the organization will continue to
provide financial services. It serves tosupport growth as a free source of funds and
provides protection against insolvency.

While meeting statutory capital requirements is a key factor in determining

capitaladequacy, the credit unions operations and risk position may warrant
additional capital beyond the statutory requirements. Maintaining an adequate level
of capital is a critical element.Determining the adequacy of a credit union's capital
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begins with a qualitative evaluationof critical variables that directly bear on the
institution's overall financial condition. This takes in to the consideration the
following factors.

Capital level and trend analysis;

Compliance with earnings transfers requirements and risk-based net worth

requirements;

Composition of capital

Interest and dividend practices and policies

Adequacy of the allowance for loan and lease losses

account,quality,type,liquidity and diversification of assets,with particular
reference to classified assets,

Loan and Investment Concentration

Growth Plans

Ability of management to control and monitor risk,including credit and

interest rate risk.

A- ASSETS QUALITY

Asset quality determines the robustness of financial institutions against loss

of value in the assets. The deteriorating value of assets, being prime source of
banking problems,directly pour into other areas, as losses are eventually written-off
against capital, whichultimately jeopardizes the earning capacity of the institution.
With this backdrop, theasset quality is gauged in relation to the level and severity
of non-performing assets,adequacy of provisions, recoveries, distribution of assets
etc. Popular indicators includenonperforming loans to advances, loan default to
total advances, and recoveries to loandefaultratios.

The solvency of financial institutions typically is at risk when their assets

becomeimpaired, so it is important to monitor indicators of the quality of their

CAMELS FRAMEWORK
Page 27
assets in terms of overexposure to specific risks, trends in nonperforming loans,
and the health and profitability of bank borrowers especially the corporate sector.
Share of bank assets inthe aggregate financial sector assets: In most emerging
markets, banking sector assetscomprise well over 80 per cent of total financial
sector assets, whereas these figures aremuch lower in the developed economies.
There is merit in recognizing the importance of diversification in theinstitutional
and instrument-specific aspects of financial intermediation in the interests of wider
choice, competition and stability. However, the dominant role of banks in
financialintermediation in emerging economies and particularly in India will
continue in themedium-term; and the banks will continue to be special for a long
time.

It is useful to emphasise the dominance of banks in the developing countries

in promotingnon-bank financial intermediaries and services including in
development of debt-markets.Even where role of banks is apparently diminishing
in emerging markets, substantively,they continue to play a leading role in non-
banking financing activities, including thedevelopment of financial markets.

Asset quality is rated in relation to:

The quality of loan underwriting, policies, procedures and practices;

The level, distribution and severity of classified assets;

The level and composition of nonaccrual and restructured assets;

The ability of management to properly administer its assets, including the timely
identification and collection of problem assets;

The existence of significant growth trends indicating erosion or improvement in

asset quality;

The existence of high loan concentrations that present undue risk to the credit
union;

The appropriateness of investment policies and practices;

The investment risk factors when compared to capital and earnings structure; and
the effect of fair (market) value of investments vs. book value of investments
CAMELS FRAMEWORK
Page 28
Total Loans/Total Shares

Total Loans/Total Assets

M- MANAGEMENT SOUNDNESS

Management of financial institution is generally evaluated in terms of capital

adequacy, asset quality, earnings and profitability, liquidity and risk sensitivity
ratings. In addition, performance evaluation includes compliance with set norms,
ability to plan and react to changing circumstances, technical competence,
leadership and administrative ability.

Sound management is one of the most important factors behind financial

institutions performance. Indicators of quality of management, however, are
primarily applicable to individual institutions, and cannot be easily aggregated
across the sector. Furthermore, given the qualitative nature of management, it is
difficult to judge its soundness just by looking at financial accounts of the banks.

The capability of the board of directors and management, in their respective

roles, to identify, measure, monitor, and control the risks of an institutions
activities and to ensure that a financial institutions safe, sound, and efficient
operation in compliance with applicable laws and regulations is reflected in this
rating.

Generally, directors need not be actively involved in day-to-day operations;

however, they must provide clear guidance regarding acceptable risk exposure
levels and ensure that appropriate policies, procedures, and practices have been
established.

Senior management is responsible for developing and implementing policies,

procedures, and practices that translate the boards goals, objectives, and risk limits
into prudent operating standards.

Sound management practices are demonstrated by: active oversight by the

board of directors and management; competent personnel; adequate policies,
processes, and controls taking into consideration the size and sophistication
of the institution; maintenance of an appropriate audits program and internal
CAMELS FRAMEWORK
Page 29
 control environment; and effective risk monitoring and management
information systems.

This rating should reflect the boards and managements ability as it applies
to all aspects of banking operations as well as other financial service
activities in which the institution is involved.

The ratio in this segment involves subjective analysis to measure the

efficiency and effectiveness of management.

E- EARNINGS

Earnings and profitability, the prime source of increase in capital base, is

examined with regards to interest rate policies and adequacy of provisioning. In
addition, it also helps to support present and future operations of the institutions.
The single best indicator used to gauge earning is the Return on Assets (ROA),
which is net income after taxes to total asset ratio. Strong earnings and profitability
profile of banks reflects the ability to support present and future operations. More
specifically, this determines the capacity to absorb losses, finance its expansion,
pay dividends to its shareholders, and build up an adequate level of capital. Being
front line of defence against erosion of capital base from losses, the need for high
earnings and profitability can hardly be overemphasized. Although different
indicators are used to serve the purpose, the best and most widely used indicator is
Return on Assets (ROA). However, for in-depth analysis, another indicator Net
Interest Margins (NIM) is also used. Compared with most other indicators, trends
in profitability can be more difficult to interpretfor instance, unusually high
profitability can reflect excessive risk taking.

L- LIQUIDITY

An adequate liquidity position refers to a situation, where institution can

obtain sufficient funds, either by increasing liabilities or by converting its assets
quickly at a reasonable cost. It is, therefore, generally assessed in terms of overall
assets and liability management, as mismatching gives rise to liquidity risk.

CAMELS FRAMEWORK
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Efficient fund management refers to a situation where a spread between rate
sensitive assets (RSA) and rate sensitive liabilities (RSL) is maintained. The most
commonly used tool to evaluate interest rateexposure is the Gap between RSA and
RSL, while liquidity is gauged by liquid to total asset ratio. Initially solvent
financial institutions may be driven toward closure by poor management of short-
term liquidity. Indicators should cover funding sources and capture large maturity
mismatches.The concept of Liability Management includes the identification,
monitoring and control of:

Interest rate risk sensitivity and exposure

Liquidity risk and control

Technical competence in asset/liability management techniques Cash maintained

by the banks and balances with central bank, to total asset ratio is an indicator of
bank's liquidity. In general, banks with a larger volume of liquid assets are
perceived safe, since these assets would allow banks to meet unexpected
withdrawals.

The liquidity of an institution depends on:

The institution's short-term need for cash;

Cash on hand;
Available lines of credit;
The liquidity of the institution's assets.

CAMELS FRAMEWORK
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 S- SENSITIVITY TO MARKET RISK

Sensitivity to Market Risk

The sensitivity to market risk component reflects the degree to which

changes in interest rates, foreign exchange rates, commodity prices, or equity
prices can adversely affect a financial institutions earnings or economic capital.
When evaluating this component, consideration should be given to: managements
ability to identify, measure, monitor, and control market risk; the institutions size;
the nature and complexity of its activities; and the adequacy of its capital and
earnings in relation to its level of market risk exposure.

For many institutions, the primary source of market risk arises from
nontrading positions and their sensitivity to changes in interest rates. In some
larger institutions, foreign operations can be a significant source of market risk. For
some institutions, trading activities are a major source of market risk.

Market risk is rated based upon an assessment of the following evaluation factors:

The sensitivity of the financial institutions earnings or the economic value

of its capital to adverse changes in interest rates, foreign exchanges rates,
commodity prices, or equity prices.

The ability of management to identify, measure, monitor, and control

exposure to market risk given the institutions size, complexity, and risk
profile.

The nature and complexity of interest rate risk exposure arising from
nontrading positions.

If appropriate, the nature and complexity of market risk exposure arising

from trading, asset management activities, and foreign operations.

CAMELS FRAMEWORK
Page 32
 Review of Literature
Said M J and Saucier P (2003) examined the liquidity, solvency and efficiency of
Japanese Banks. Using CAMEL rating methodology, for a representative sample of
Japanese banks for the period 1993-1999, they evaluated capital adequacy, assets
and management quality, earnings ability and liquidity position. They quantified
the bank's managerial quality by calculating X-inefficiency using data envelopment
analysis (DEA). They identified the sub-group of failed or recapitalized banks with
mean tests and proximity estimates, the capacity of CAMEL variables to predict
and explaindistress.

Gasbarro, Sadguna I and Kenton J (2004) examined the changing financial

soundness of Indonesian banks during the crisis. It showed that during Indonesia's
stable economic periods, four of the five traditional CAMEL components provided
insights into the financial soundness of Indonesian banks. The panel data results
indicate the systemic economy-wide forces must be explicitly considered by the
rating system.

Sarker A (2005) examined the CAMEL Model for regulation and supervision of
Islamic banks by the central bank in Bangladesh and reviewed the CAMELS
standard set by the BASEL Committee for offsite supervision of the banking
institutions, their consistencies and inconsistencies under an Islamic setup and had
put forward a Sharia Matrix for the first time to elicit comments and suggestions
from the Sharia experts and expert Islamic bankers. This study enabled the
regulators and supervisors to get a Sharia benchmark to supervise and inspect
Islamic banks and Islamic financial institutions from an Islamic perspective. This
effort added a new 'S' to the CAMELS rating system as Sharia rating and
CAMELS has become 'CAMELSS' rating system.

Bhayani S (2006) analyzed the performance of new private sector banks with the
help of the CAMEL Model. Four leading private sector banks Industrial Credit

CAMELS FRAMEWORK
Page 33
& Investment Corporation of India (ICICI), Housing Development Finance
Corporation (HDFC), Unit Trust of India (UTI) and Industrial Development Bank
of India (IDBI) - had been taken as a sample. After making an analysis, the author
has assigned ranks to all the banks on the basis of parameters of CAMEL Model.
The data of five years, i.e., from 2000-01 to 2004-05, were used. The findings of
the study revealed that the aggregate performance of Industrial Development Bank
of India was the best among all the banks, followed by Unit Trust of India.

Gupta R K and Kaur S (2008) conducted the study with the main objective to
assess the performance of Indian Private Sector Banks on the basis of CAMEL
Model and gave rating to top five and bottom five banks. They ranked 20 old and
10 new private sector banks on the basis of CAMEL model.

They considered the financial data for the period of five years i.e. from 2003-07.
The major findings according to the Camel Model revealed that HDFC was on the
top of all the private sector banks in India followed by the Karur Vyasa Bank and
Tamilnadu Mercantile Bank. The Global Trust Bank and the Nedungadi Bank
episodes were examples for mismanagement.

CAMELS FRAMEWORK
Page 34
CAMELS FRAMEWORK
Page 35
 Objective of the Study
Primary Objective

To analyze Public sector and Private sector banks to measure their

performance by using CAMELS Framework as a measuring tool.

Secondary Objective

To explore about CAMELS Framework.

To know about the origin of CAMELS rating system.

Scope of the Study

Significance of performance evaluation in an organization, for sustainable

growth and development, has been recognized since long. This calls for a
system that first measures and evaluates the performance, and then brings
out the strengths and weaknesses of the organization for the purpose of
further improvement. It has been observed that the evaluation of the
financial performance alone is not sufficient for the present day
organizations. The situation is not different even for financial institutions
like banks. So, this research is an attempt to describe the need for a modern
performance evaluation system for Indian banks.
Economic development of any country is mainly influenced by the growth of
the banking industry in that country. The CAMELS Model is used to judge
the performance of the bank. The model tells us about the profitability and
the soundness of the bank. It states the best performing bank according to
the parameters of the model. When, so many banks are bankrupt, it is
necessary to know the liquidity position of the bank. The CAMELS Model is
a comprehensive model that tells about the capital adequacy, asset quality,
management soundness, liquidity position and Sensitivity to market risk of a
bank.

CAMELS FRAMEWORK
Page 36
 STATEMENT OF PROBLEM

In the recent years the financial system especially the banks have undergone
numerous changes in the form of reforms, regulations & norms. The attempt here
is to see how various ratios have been used and interpreted to reveal a banks
performance and how this particular model encompasses a wide range of
parameters making it a widely used and accepted model in todays scenario.

RESEARCH TYPE DESCRIPTIVE RESEARCH

Here, we are under going to have descriptive research i.e. analysis of banks
financial statements which will make us understand the position of one bank in
comparison of another and their financial position.

RESEARCH METHODOLOGY

1. Area of survey:
The survey will be done for four banks. The study environment will
be the Banking industry.

2. Plan of analysis:

Here, we will be using financial statements of the banks in order to calculate

different ratios required for camel rating system as it considers all areas of banking
operations and considered to be the best available method for evaluation bank
performance and banks health.

DATA SOURCE

Secondary data

Secondary data on the subject was collected from banks prospectus, annual
reports and other websites.

CAMELS FRAMEWORK
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 SAMPLING

In this study, 3 indicators are chosen from CAMEL category and all
indicators are calculated for Indian banks. From the private sector banks; ICICI
and HDFC banks are chosen and from the public sector banks SBI and BOB are
chosen. Data of last 5 years i.e march 2012-16 are taken for the sample.

BENEFICIARIES

CAMELS rating system help the banks to enhance required capital

adequacy, strengthen asset quality, improve management, increase earnings and
reduce sensitivity to various financial risks. Keeping this in mind, they will able to
make improvements and deteriorates the problems effectively. It will be helpful for
the reader to know the specific details of the model which in turn lead to identify
the strengths and weaknesses of the banks. By having a standardized CAMELS
model for all banks, it becomes easy to compare different banks. As this model
uses all significant ratios of banks, it will be useful for the reader to know how
effectively bank manages each ratio and whether it meets its pre-determined
criteria for each ratio as per RBI rules and regulations.

LIMITATION OF THE STUDY

The study was limited to four banks only.

Time and resource constrains.
The method discussed pertains only to banks though it can be used for
performance evaluation of other financial institutions.
The study was completely done on the basis of ratios calculated from the
balance sheets.
It was not possible to get a personal interview with the top management
employees of all banks under study.

CAMELS FRAMEWORK
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CAMELS FRAMEWORK
Page 39
 CAPITAL ADEQUACY

1. Capital Adequacy Ratio (CAR)

This ratio is propounded to ensure that banks can take up a reasonable level
of losses arising from operational losses. The higher the CAR ratio, indicates
stronger the bank and the more will be the protection of investors. The banks need
to maintain 9% capital adequacy ratio as per latest RBI norms.

CAR = (Tier-I Capital + Tier-II Capital)/RiskWeighted Assets.

Tier One and Tier Two Capital

Tier one capital is the capital that is permanently and easily available to
cushion losses suffered by a bank without it being required to stop operating. A
good example of a banks tier one capital is its ordinary share capital.Tier 1 capital
includes permanent shareholders equity; perpetualnon-cumulative preference
shares, Disclosed reserves and Innovative capitalinstruments.

Tier 2 capital includes Undisclosed reserves, Revaluation reserves offixed

assets and long-term holdings of equity securities, General provisions/generalloan-
loss reserves; Hybrid debt capital instruments and subordinated debt.Tier two
capital is the one that cushions losses in case the bank is winding up, so it provides
a lesser degree of protection to depositors and creditors. It is used to absorb losses
if a bank loses all its tier one capital.

Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 17 17 18 19 19 18 1
2 HDFC 16 17 17 16 17 16.6 2
3 SBI 13 12 13 13 12 12.6 4
4 BOB 13 13 12 13 15 13.2 3

CAMELS FRAMEWORK
Page 40
 Capital Adequacy Ratio
20.00 19.0019.00
18.00
18.00 17.00 17.00 17.00 17.00 17.00
16.00 16.00
16.00 15.00
14.00 13.00 13.00 13.00 13.00 13.00 13.00
12.00 12.00 12.00
Capital Adequacy Ratio

12.00
10.00
8.00
6.00
4.00
2.00
0.00
I I
IC a nk SB BO
B
IC B
D FC
H

BANKS

Interpretation:

On analysing the Capital Adequacy Ratio, it is found that the CAR of ICICI
Bank is highest than the other banks which is 18%.
The HDEC Bank is ranked second with 16.6% and BOB is ranked third with
13.2%.
SBI Bank has lowest CAR for the period.

2. Debt Equity Ratio

Debt/Equity Ratio is a debt ratio used to measure a company's
financial leverage, calculated by dividing a companys total liabilities by
its stockholders' equity. The D/E ratio indicates how much debt a company is using
to finance its assets relative to the amount of value represented in
shareholders equity.

The formula for calculating D/E ratios can be represented in the following way:

Debt - Equity Ratio = Total Liabilities / Shareholders' Equity

The result may often be expressed as a number or as a percentage.

CAMELS FRAMEWORK
Page 41
 A high debt to equities ratio means less protection for creditors, a lower
ratio, on the other hand, indicates a wider safety cushion. This ratio indicates the
proportion of debt fund in relation to equity.

Debt- Equity ratio is the indicator of firms financial leverage.

Sr.No Bank 2016 2015 2014 2013 2012 Average Rank

1 ICICI 6.64 6.64 6.65 6.57 6.55 6.61 1
2 HDFC 8.25 8.00 9.36 9.09 9.04 8.75 2
3 SBI 13.55 13.87 13.34 13.87 13.94 13.72 3
4 BOB 15.11 16.39 16.83 15.65 14.87 15.77 4

Debt Equity Ratio

18.00
16.83
16.39
16.00 15.65
15.11 14.87
14.00 13.55 13.87 13.34 13.87 13.94
Debt Equity Ratio

12.00

10.00 9.36 9.09 9.04

8.25 8.00
8.00
6.64 6.64 6.65 6.57 6.55
6.00

4.00

2.00

0.00
I I
I C a nk SB BO
B
IC B
FC
HD

BANKS

Interpretation:

This ratio represents the degree of leverage of a bank. It shows how much
proportion of the bank business is financed through equity and how much
through debt. It is calculated by dividing total borrowings with shareholders
net worth. Higher ratio is an indication of less protection for the depositors
and creditors and vice-versa.
CAMELS FRAMEWORK
Page 42
 In above table, ICICI is on the top position with least average of 6.61
followed by HDFC (8.75) and SBI (13.72). BOB scored the lowest (15.77)
position.

3. Total Advances to Total Asset Ratio:

This is the ratio of the total advance to total assets. This indicates banks
aggressiveness in lending which ultimately results in better profitability. Higher
ratio of advances of bank deposits is preferred to a lower one. Total advances also
include receivables. The value of total assets is excluding the revolution of all the
assets.

Total Advances/Total Asset

Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 60.40 59.98 56.96 54.07 53.57 56.99 4
2 HDFC 65.54 61.90 61.64 59.88 57.83 61.36 2
3 SBI 64.79 63.48 67.50 66.76 64.96 65.50 1
4 BOB 57.16 59.87 60.20 59.98 64.24 60.29 3

Total Advances to Total Assets

Total Advances to TotalAssets

80.00

70.00 65.54 67.50 66.76

64.79 63.48 64.96 64.24
60.40 59.98 61.90 61.64 59.88 59.87 60.20 59.98
60.00 56.96 57.83 57.16
54.07 53.57
50.00

40.00

30.00

20.00

10.00

0.00
I I
IC a nk SB BO
B
IC B
D FC
H

BANKS

CAMELS FRAMEWORK
Page 43
Interpretation:

This is a ratio indicates the relationship between the total advances and total
assets. This ratio indicates a banks aggressiveness in lending which
ultimately produces better profitability. Higher ratio is preferred to a lower
one.
In above table, SBI is on the top position with highest average of 65.50
followed by HDFC (61.36) and BOB (60.29). ICICI scored the lowest
position.

Composite Rating Of Capital Adequacy

Debt- Equity Advances to
CAR Group Rank
Ratio Asset Ratio
Averag Ran
Bank % Rank % Rank % Rank e k
ICICI 18 1 6.61 4 56.99 4 3.00 1
HDF
2.33
C 16.6 2 8.75 3 61.36 2 3
SBI 12.6 4 13.72 2 65.50 1 2.33 3
BOB 13.2 3 15.77 1 60.29 3 2.33 3

CAMELS FRAMEWORK
Page 44
 ASSET QUALITY
1. Gross NPA ratio

This ratio is used to check whether the bank's gross NPAs are increasing quarter on
quarter or year on year. If it is, indicating that the bank is adding a fresh stock of
bad loans. It would mean the bank is either not exercising enough caution when
offering loans or is too lax in terms of following up with borrowers on timely
repayments.

Gross NPA/Net Advances

Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 6.02 3.90 3.10 3.31 3.73 4.01 2
2 HDFC 0.95 0.94 0.99 0.97 1.02 0.97 1
3 SBI 6.71 4.36 5.09 4.90 4.57 5.13 4
4 BOB 10.56 3.80 2.99 2.43 1.55 4.27 3

Gross NPA To Net Advances

Gross NPA To Net Advances

12.00
10.56
10.00

8.00
6.71
6.02
6.00 5.09 4.90
4.36 4.57
3.90 3.73 3.80
4.00 3.10 3.31 2.99
2.43
2.00 1.55
0.95 0.94 0.99 0.97 1.02

0.00
I I
IC nk SB
B
I C Ba BO
FC
HD

BANKS

CAMELS FRAMEWORK
Page 45
Interpretation:

It is the most standard measure to judge the assets quality, measuring the
gross nonperforming assets as a percentage of advances.
HDFC is on the top position with least average of 0.97 followed by ICICI
(4.01) and BOB (4.27) on second and third positions respectively. SBI
scored the lowest position with highest percentage of 5.13.

2. Net NPA ratio:

Net NPAs reflect the performance of banks. A high level of NPAs suggests high
probability of a large number of credit defaults that affect the profitability and net-
worth of banks and also wear down the value of the asset. Loans and advances
usually represent the largest asset of most of the banks. It monitors the quality of
the bank loan portfolio. The higher the ratio, the higher the credits risk.

Net NPA ratio = Net NPA/Net Advances

Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 0.030 0.016 0.010 0.008 0.007 0.014 2
2 HDFC 0.003 0.002 0.003 0.002 0.002 0.002 1
3 SBI 0.038 0.021 0.026 0.021 0.018 0.025 4
4 BOB 0.050 0.019 0.015 0.013 0.005 0.020 3

CAMELS FRAMEWORK
Page 46
 Net NPA to Net Advances
Net NPA to Net Advances 0.06
0.05
0.05

0.04 0.04
0.03
0.03
0.02 0.02
0.02 0.02 0.02
0.02 0.01
0.01 0.01 0.01
0.01 0.01
0.00 0.00 0.00 0.00 0.00
0.00
I I 0.00 0.00
IC nk SB
B
I C Ba BO
FC
HD

BANKS

Interpretation:

It is the most standard measure to judge the assets quality, measuring the net
nonperforming assets as a percentage of net advances. Net NPAs = Gross
NPAs - Net of provisions on NPAs - interest in suspense account.
HDFC is on the top position with least average of 0.002 followed by ICICI
(0.014) and BOB (0.020) on second and third positions respectively. SBI
scored the lowest position with highest percentage of 0.025.

3. Total loans to Total assets:

Total loan to total assets is a leverage ratio that defines the total amount of debt
relative to assets. This enables comparisons of leverage to be made across different
banks. The higher the ratio, the higher is the degree of leverage, and consequently,
financial risk. This is a broad ratio that includes long-term and short-term
loan (borrowings maturing within one year), as well as all assets tangible and
intangible.

Total Borrowings/Total Assets

CAMELS FRAMEWORK
Page 47
Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 24.26 26.68 26.03 27.08 29.59 26.73 1
2 HDFC 7.48 7.66 8.02 8.24 7.06 7.69 3
3 SBI 9.92 10.02 10.22 10.80 9.51 10.09 2
4 BOB 4.99 4.93 5.35 6.73 8.23 6.04 4

Total Loans To Total Assets

35.00
29.59
30.00
26.6826.0327.08
25.00 24.26
Total Loans To Total Assets

20.00

15.00
9.92 10.02 10.22
10.80
10.00 7.48 7.66 8.02 8.24 7.06 8.23
6.73
4.99 4.93 5.35
5.00

0.00
I
I C a nk
I B 9.51
IC SB BO
B
D FC
H

BANKS

Interpretation:

Here, the ratio of ICICI bank is highest as in respect to other banks which
we can see from the graph as well as from the table, which indicates higher
leverage of ICICI bank.

CAMELS FRAMEWORK
Page 48
 Composite Rating Of Asset Quality

Gross NPA to Net Net NPA to Net Total Loans to

Group Rank
Advances Advances Total Assets
Ran
Average
Bank % Rank % Rank % Rank k
ICICI 4.01 2 0.014 2 26.73 1 1.67 3.5
HDF
C 0.97 1 0.002 1 7.69 3 1.67 3.5
SBI 5.13 4 0.025 4 10.09 2 3.33 1.5
BOB 4.27 3 0.020 3 6.04 4 3.33 1.5

MANAGEMENT SOUNDNESS
1. Total advance to Total deposits ratio:

This ratio measures the efficiency and ability of the banks management in covering
the deposits available with the banks excluding other funds like equity capital etc.
into high earning advances .Total deposits include demand deposits, savings
deposits, term deposits and deposits of other bank .Total advances also includes the
receivables.

Total Advance/ Total Deposits

Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 1.03 1.07 1.02 0.99 0.99 1.02 1
2 HDFC 0.85 0.81 0.82 0.81 0.79 0.82 3
3 SBI 0.85 0.82 0.87 0.87 0.83 0.85 2
4 BOB 0.67 0.69 0.70 0.69 0.75 0.70 4

CAMELS FRAMEWORK
Page 49
 Total Advances To Total Deposits
Total Advances To Total Deposits 1.20
1.07
1.03 1.02 0.99 0.99
1.00
0.85 0.87 0.87 0.83
0.81 0.82 0.81 0.79 0.85 0.82
0.80 0.75
0.67 0.69 0.70 0.69
0.60

0.40

0.20

0.00
I I
IC nk SB
B
I C Ba BO
FC
HD

BANKS

Interpretation:

The ratio evaluate the efficiency and capatibility of the banks management
in applying the deposits available exciting other funds viz equity capital,etc .
into rich earning advances.
ICICI is on the top position with highest average of 1.02 followed by SBI
(0.85) and HDFC(0.82) on second and third positions respectively . BOB
scored the lowest position with least percentage of 0.70.

2. Business per Employee:

Revenue per employee is a measure of how efficiently a particular bank is utilising

its employees. Ideally, a bank wants the highest business per employee possible, as
it denotes higher productivity. In general, rising revenue per employee is a positive
sign that suggests the bank is finding ways to squeeze more sales/revenue out of
each of its employee.
CAMELS FRAMEWORK
Page 50
 Business per Employee = Total Income(Net Profit)/ No. of Employees

Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 11.87 11.29 9.28 9.39 8.74 10.12 3
2 HDFC 11.55 10.70 9.83 7.76 6.69 9.31 4
3 SBI 15.38 13.49 11.73 9.85 8.87 11.86 2
4 BOB 18.41 21.18 21.00 18.61 15.94 19.3 1

Business Per Employee

25.00
Business Per Employee

21.1821.00
20.00 18.61
15.38 15.94
15.00 13.49
11.8711.29 11.5510.70 11.73
9.28 9.39 8.74 9.83 9.85 8.87
10.00 7.76
6.69
5.00

0.00
I I 0.00
IC nk SB
B
I C Ba BO
FC
HD

BANKS

Interpretation:

Business per employee reveals the productivity and efficiency of human

resource of bank. It is followed as a tool to measure the efficiency of
employees of a bank higher the ratio, the better it is for the bank and vice
versa.
BOB is the top position 19.03 followed by SBI (11.86) and ICICI (10.12)
respectively. HDFC scored the lowest position with least ratio of 9.31.

3. Profit per Employee:

The ratio shows the surplus earned per employee. It is arrived at by dividing profit
after tax earned by the bank by the total number of employee. The higher the ratio
shows good efficiency of the management.
CAMELS FRAMEWORK
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 Profit per Employee = Net Profit/No. of Employees

Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 0.13 0.17 0.14 0.13 0.11 0.14 1
2 HDFC 0.14 0.13 0.12 0.10 0.08 0.11 2
3 SBI 0.05 0.06 0.05 0.06 0.05 0.05 4
4 BOB -0.10 0.07 0.10 0.10 0.12 0.06 3

Profit Per Employee

0.18 0.17
0.16
Profit Per Employee

0.14 0.13 0.14 0.13

0.14 0.13 0.12 0.12
0.12 0.11
0.10 0.10 0.10
0.10
0.08
0.08 0.07
0.06 0.06
0.06 0.05 0.05
0.05
0.04
0.02
0.00
I I 0.00
IC nk SB
B
I C Ba BO
FC
HD

BANKS

Interpretation:

It is calculated by dividing the profit after tax earned by the bank with the
total number of employees .The higher the ratio ,higher is the efficiency of
the management and vice versa.
ICICI is on the top position with highest average of 0.14 followed by
HDFC 0.11 and BOB 0.06 respectively.SBI Scored the lowest position with
least ratio of 0.05

CAMELS FRAMEWORK
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 Composite Rating of Management Soundness

Total Adv to Total Business Per Profit Per

Deposits Employee Employee Group Rank
Ran
Average
Bank % Rank % Rank % Rank k
ICICI 1.02 1 10.12 3 0.14 1 1.67 4
HDF
C 0.82 3 9.31 4 0.11 2 3.00 1
SBI 0.85 2 11.86 2 0.05 4 2.67 2.5
BOB 0.70 4 19.03 1 0.06 3 2.67 2.5

EARNINGS

1.Net profit to Total assets:

This ratio reflects the return on assets employed or the efficiency in utilization of
assets. It is calculated by dividing the net profits with total assets of the bank.
Higher the ratio reflects better earning potential of a bank in the future.

Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 1.35 1.73 1.65 1.55 1.36 1.53 2
2 HDFC 1.73 1.73 1.72 1.68 1.53 1.68 1
3 SBI 0.44 0.64 0.61 0.90 0.88 0.69 3
4 BOB -0.80 0.48 0.69 0.82 1.12 0.46 4

CAMELS FRAMEWORK
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 Net profit To Total Assets
2.00 1.73 1.65 1.73 1.73 1.72 1.68
1.55 1.53
1.50 1.35 1.36
Net profit To Total Assets

1.12
1.00 0.90 0.88 0.82
0.64 0.61 0.69
0.44 0.48
0.50

0.00
CI k I B
CI Ba n SB BO
-0.50 I
FC
HD
-1.00 -0.80
BANKS

Interpretation:

This ratio reflects the return on assets employed or the efficiency in

utilization of assets. It is calculated by dividing the net profits with total
assets of the bank. Higher the ratio reflects better earning potential of a bank
in the future.
HDFC is on the top position with highest average of 1.68 followed by ICICI
(1.53) and SBI (0.69) respectively. BOB scored the lowest position with
least ratio of 0.76.

2.Return on Assets (ROA):

Returns on asset ratio is the net income (profits) generated by the bank on its
total assets (including fixed assets). The higher the proportion of average earnings
assets, the better would be the resulting returns on total assets. Similarly, ROE
(returns on equity) indicates returns earned by the bank on its total net worth.

Return on assets =Net profits / Avg. total assets

CAMELS FRAMEWORK
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Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 1.34 1.72 1.64 1.55 1.36 1.522 2
2 HDFC 1.73 1.73 1.72 1.68 1.52 1.676 1
3 SBI 0.44 0.63 0.6 0.9 0.87 0.688 3
4 BOB -0.8 0.47 0.68 0.81 1.11 0.454 4

Return on Assets(ROA)
2
1.72 1.64 1.73 1.73 1.72 1.68
Return on Assets(ROA)

1.55 1.52
1.5 1.34 1.36
1.11
1 0.9 0.87
0.81
0.63 0.6 0.68
0.44 0.47
0.5

0
I I
IC nk SB
B
I C Ba BO
-0.5 D FC
H

-1 -0.8

BANKS

Interpretation:

HDFC is on the top position with highest average of 1.67 followed by ICICI
(1.52) and SBI (0.69) respectively. BOB scored the lowest position with
least ratio of 0.45.

3.Net Interest Margin

The net interest margin measures the difference between interest paid and interest
received, adjusted relative to the amount of interest-generating assets.

The formula for net interest margin is:

Net Interest Margin = (Interest Received - Interest Paid) / Average Invested

Assets

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Net interest margin is always expressed as a percentage.

A positive net interest margin means the investment strategy pays more interest
than it costs. Conversely, if net interest margin is negative, it means the investment
strategy costs more than it makes.

Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 2.94 2.94 2.77 2.58 2.26 2.698 3
2 HDFC 3.89 3.79 3.75 3.94 3.63 3.8 1
3 SBI 2.51 2.68 2.74 2.83 3.24 2.8 2
4 BOB 1.89 1.84 1.81 2.06 2.3 1.98 4

Net int margin

4.5
3.89 3.79 3.75 3.94
4 3.63
3.5 3.24
2.94 2.94 2.77
Net int margin

3 2.68 2.74 2.83

2.58 2.51
2.5 2.26 2.3
1.89 1.84 1.81 2.06
2
1.5
1
0.5
0
I I
IC n k SB B
I C Ba BO
FC
HD

BANKS

Interpretation:
NIM is the difference between the interest income and the interest expended.
It is expressed as a percentage of total assets. A higher spread indicates the
better earnings given the total assets.
HDFC is on the top position with highest average of 3.8 followed by SBI
(2.8) and ICICI (2.7) respectively. BOB scored the last position with least
ratio of 1.98.

CAMELS FRAMEWORK
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 Composite Rating Of Earnings

1.Net profit To
Return on Asset NIM Group Rank
Total Assets
Averag Ran
Bank % Rank % Rank % Rank
e k
ICICI 1.53 2 1.522 2 2.698 3 2.33 3
HDF
1.68 1 1.676 1 3.8 1 1.00 4
C
SBI 0.69 3 0.688 3 2.8 2 2.67 2
BOB 0.46 4 0.454 4 1.98 4 4.00 1

LIQUIDITY

1. Credit Deposit Ratio

Credit Deposit Ratio is the ratio of how much a bank lends out of the deposits it
has mobilized. RBI does not stipulate a minimum or maximum level for the ratio,
but a very low ratio indicates banks are not making full use of their resources.
Alternatively, a high ratio indicates more reliance on deposits for lending and a
likely pressure on resources.

CD Ratio helps in assessing a banks liquidity and indicates its health. If the ratio is
too low, banks may not be earnings as much as they could be. If the ratio is too
high, it means that banks might not have enough liquidity to cover any unforeseen
fund requirements, may effect capital adequacy and asset-liability mis-match. A
very high ratio could have implications at the systemic level.

Total Advances/Total Deposits

Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 0.41 0.48 0.47 0.50 0.55 0.48 1
2 HDFC 0.10 0.10 0.11 0.11 0.10 0.10 3
3 SBI 0.13 0.13 0.13 0.14 0.12 0.13 2
4 BOB 0.06 0.06 0.06 0.08 0.10 0.07 4
CAMELS FRAMEWORK
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 Credit Deposits Ratio
0.60
0.55
0.50
0.50 0.48 0.47
Credit Deposits Ratio

0.41
0.40

0.30

0.20
0.13 0.13 0.13 0.14 0.12
0.10 0.10 0.11 0.11 0.10 0.10
0.10 0.08
0.06 0.06 0.06

0.00
I I
IC nk SB
B
I C Ba BO
FC
HD

BANKS

Interpretation:

BOB has lower liquidity, as its earnings capability is lowest compare to

other banks. Where as ICICI has highest earnings capacity.

2. Liquidity Ratio:

Liquidity or short term solvency means ability of the business to pay its short term
liabilities.

Reserve requirement, a bank regulation that sets the minimum reserves each
bank must hold.
Liquidity ratio expresses a company's ability to repay short-term creditors
out of its total cash. It is the result of dividing the total cash by short-term
borrowings. It shows the number of times short-term liabilities are covered
by cash. If the value is greater than 1.00, it means fully covered.
Liquidity Ratio = Current assets / Current liabilities

CAMELS FRAMEWORK
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Sr. Bank
No Name 2016 2015 2014 2013 2012 Average Rank
1 ICICI 0.19 0.12 0.14 0.15 0.13 0.15 2.00
2 HDFC 0.12 0.10 0.14 0.09 0.14 0.12 4
3 SBI 0.15 0.13 0.11 0.11 0.12 0.12 3
4 BOB 0.25 0.24 0.23 0.18 0.18 0.22 1

Liquidity Ratio
0.30
0.25
0.25 0.24 0.23
Liquidity Ratio

0.20 0.19 0.18 0.18

0.15 0.14 0.15 0.13 0.14 0.14 0.15

0.12 0.12 0.13 0.12
0.10 0.11 0.11
0.10 0.09

0.05

0.00
I I
IC nk SB
B
I C Ba BO
FC
HD

BANKS

Interpretation:

Above graph shows BOBs liquidity is comparatively good than other banks
as its ability to repay the short term creditors out its cash.
But HDFC banks liquidity is lowest than others.

CAMELS FRAMEWORK
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 Composite Rating Of Liquidity
Credit Deposit Ratio Liquidity Ratio Group Rank
Bank % Rank % Rank Average Rank
ICICI 0.48 1 0.15 2.00 1.50 4.00
HDF
0.10 3 0.12 4 3.50 1
C
SBI 0.13 2 0.12 3 2.50 2.5
BOB 0.07 4 0.22 1 2.50 2.5

Composite Ranking (overall performance)

Bank Name C A M E L Average Rank

ICICI 1 3.5 4 1.67 4.00 2.83 1

HDFC 3 3.5 1 1.33 1 1.97 4
SBI 3 1.5 2.5 1.83 2.5 2.27 2
BOB 3 1.5 2.5 1.83 2.5 2.27 2

CAMELS FRAMEWORK
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CAMELS FRAMEWORK
Page 61
 FINDINGS
In this research, the impact of CAMEL model parameters on Bank performance
has been analyzed. The process of our study highlighted that, the different banks
have obtained different ranks with respect to CAMELS ratios. Our study concluded
that in terms of capital adequacy ratio parameter ICICI was at the top position The
possible reason for this was the strong performance in debt-equity, advances to
assets.

In terms of asset quality parameter, SBI held the top rank The possible reason for
this was the strong performance of SBI in gross NPA to net advances, net NPAs to
net advances, and total loans to total assets ratios.

Under management efficiency parameter it is observed that top rank taken by

HDFC and lowest rank taken by ICICI. The possible reason for this was the poor
performance of ICICI in total advances to total deposits, profit per employee and
business per employee ratios.

In terms of earning quality parameter the capability of BOB got the top rank in the
while HDFC was at the lowest position. The possible reason for this was the poor
performance of HDFC in net profit to total assets, return on assets and net interest
margin to total assets ratios.

Under the liquidity parameter HDFC stood on the top position and ICICI was on
the lowest position. The possible reason for this was the poor performance of ICICI
in credit deposit ratio and Liquidity ratio. The present study is limited in scope as it
relates to four banks only.

CAMELS FRAMEWORK
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 RECOMMENDATIONS
On the basis of the findings of the study, it recommends that:

i) The banks should improve their capital base and maintain adequate capital
adequacy ratio, lower the ratio more the performance of the banks.

ii) The bank should decrease their nonperforming loan in order to improve their
asset quality and limiting the loan outstanding.

iii) The administration of the bank should manage the cost of the bank, and the cost
to income ratio should be in a reasonable range. The administration of the bank
should make sure the costs of the bank are utilized in the sensible way.

iv) The bank should increase their net profit and improve their net interest margin,
and maximize the income of loan product.

v) The bank should try to get more deposits and keep the right amount of liquid
assets to increase its liquidity.

For asset quality banks need to enhance their procedures for screening,
credit clients and observing of credit danger. This is a critical indicator on the
grounds that the banks have confronted difficult issues with non-performing credits
in the past which prompted the breakdown of numerous banks. Then again banks
ought to concentrate on enhancing their capital levels so as to enhance their
financial execution. This will empower the banks to be cushioned against outside
stuns, as well as to exploit business open incredibly and expand their budgetary
execution in the process. Income diversification can be accomplished by expanding
interest income, charges and commissions and foreign exchange activities.

CAMELS FRAMEWORK
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 RECOMMENDATION FOR FUTURE STUDIES
Further studies could use different ratios to represent each factor of
CAMEL, for example, the shareholders equity to assets ratio could represent the
capital adequacy instead of the risk-weighted capital adequacy ratio. Also, more
ratios could be included to represent each factor of CAMEL. Further studies also
could extend the period of data observed and also change the frequency of data
used and this might offer a different result. The restriction of the present study is
that it is limited to the investigation of 2 private sector banks and 2 public sector
banks in India.

The CAMEL model can be applied to the investigation of the financial execution
of more banks and additionally non-banking financial organizations for further
analysis. Accordingly, in the further research one may need to consider this
examination as a source of perspective to extend the scope and enhance the
consequences of the exploration

CAMELS FRAMEWORK
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 WEBOGRAPHY
https://investopedia.com/camelrating

https://en.m.wikipedia.org/wiki/CAMELS_rating_system

http://niet.co.in/nietpfd/Camelmodel

http://researchgate.net

http://icicibank.com

http://hdfcbank.co.in

http://bankofbaroda.co.in

http://www.sbi.co.in

http://moneycontrol.com

CAMELS FRAMEWORK
Page 65
 A
Synopsis
Of
Comprehensive Project
On
CAMELS FRAMEWORK AS A TOOL TO MEASURE
PERFOMANCE OF BANKS
From: 5146 Devanshi Shah
5203 Hitayshi Modi
5214 Margi Shah
K. S. School of Business Management
Year: 2016-17

CAMELS FRAMEWORK
Page 66
 Overview of camels rating system
The CAMELS rating is a supervisory rating system originally developed in the
United States to classify a bank's overall condition. A CAMELS Rating system or
CAMELS Framework is a common phenomenon for all banking system all over
the countries of the world.

It is mainly used to measure a ranking position of a bank on the basis of few

criteria. CAMELS rating system is an international bank-rating system where bank
supervisory authorities rate institutions according to six factors.

The six factors are represented by the acronym "CAMELS".

The six factors examined are as follows:

C -Capital Adequacy

A- Asset Quality

M -Management Soundness

E Earnings and Profitability

L - Liquidity

S - Sensitivity to Market Risk

The ratings are assigned based on a ratio analysis of the financial statements,
combined with on-site examinations made by a designated supervisory authority.

Bank supervisory authorities assign a score on a scale of one (best) to five (worst)
for each factor to each bank. If a bank has an average score less than two it is
considered to be a high-quality institution, while banks with scores greater than
three are considered to be less-than-satisfactory establishments. The system helps
the supervisory authority identify banks that are in need of attention.Ratings are
not released to the public but only to the top management to prevent a possible
bank run on an institution.

CAMELS FRAMEWORK
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Institutions with deteriorating situations and declining CAMELS ratings are
subject to ever increasing supervisory scrutiny. Failed institutions are eventually
resolved via a formal resolution process designed to protect retail depositors.

Origin of camels rating system

There were many banks rating system available in the world. However, Camels
rating system is the most successful bank rating system in the world. The Uniform
Financial Institutions Rating System (UFIRS) was created in 1979 by the bank
regulatory agencies. Under the original UFIRS a bank was assigned ratings based
on performance in five areas: the adequacy of Capital, the quality of Assets, the
capability of Management, the quality and level of Earnings and the adequacy of
Liquidity. Bank supervisors assigned a 1 through 5 rating for each of these
components and a composite rating for the bank. This 1 through 5 composite rating
was known primarily by the short form CAMEL.

A bank received the CAMEL rate 1 or 2 for their sound or good performance in
every respect of criteria. The bank which exhibited unsafe and unsound practices
or conditions, critically deficient performance received the CAMEL rate 5 and that
bank was of the greatest supervisory concern.

While the CAMEL rating normally bore close relation to the five component
ratings, it was not the result of averaging those five grades. Supervisors consider
each institutions specific situation when weighing component ratings and review
all relevant factors when assigning ratings to a certain extent. The process and
component and composite system exist similar for all banking companies.

In 1996, the UFIRS was revised and CAMEL became CAMELS with the addition
of a component grade for the Sensitivity of the bank to market risk. Sensitivity is
the degree to which changes in market prices such as interest rates adversely affect
a financial institution.

Following is a description of the graduations of rating:

Rating 1indicates strong performance: Best rating.

CAMELS FRAMEWORK
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Rating 2reflects satisfactory performance.

Rating 3represents performance that is flawed to some degree.

Rating 4refers to marginal performance and is significantly below average and

Rating 5is considered unsatisfactory: Worst rating.

Rating

Rating 1 indicates strong performance and risk management practices that

consistently provide for safe and sound operations. Management clearly identifies
all risks and employs compensating factors mitigating concerns.

Rating 2

Rating 2 reflects satisfactory performance and risk management practices that

consistently provide for safe and sound operations. Management identifies most
risks and compensates accordingly.

Rating 3

Rating 3 represents performance that is flawed to some degree and is of

supervisory concern. Risk management practices may be less than satisfactory
relative to the bank or credit union's size, complexity, and risk profile.
Management may not identify and provide mitigation of significant risks. Both
historical and projected key performance measures may generally be flat or
negative to the extent that safe and sound operations may be adversely affected.

Rating 4

Rating 4 refers to poor performance that is of serious supervisory concern. Risk

management practices are generally unacceptable relative to the banks or credit
union's size, complexity and risk profile. Key performance measures are likely to
be negative. Such performance, if left unchecked, would be expected to lead to
conditions that could threaten the viability of the bank or credit union.

Rating 5

CAMELS FRAMEWORK
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Rating 5 is considered as unsatisfactory performance. It is critically deficient and
in need of immediate remedial attention. Such performance, by itself or in
combination with other weaknesses, directly threatens the viability of the bank or
credit union. The volume and severity of problems are beyond management's
ability or willingness to control or correct.

Six factors of CAMELS ratings system

1. Capital Adequacy

Capital adequacy focuses on the total position of bank capital. It assures the
depositors that they are protected from the potential shocks of losses that a bank
incurs. Financial managers maintain companys adequate level of capitalization by
following it. It is the key parameter of maintaining adequate levels of
capitalization.

2. Asset Quality

The asset quality rating is a function of present conditions and the likelihood of
future deterioration or improvement based on economic conditions, current
practice and trends. The examiner assesses credit union's management of credit
risk to determine an appropriate component rating for Asset Quality. Interrelated to
the assessment of credit risk, the examiner evaluates the impact of other risks such
as interest rate, liquidity, strategic, and compliance.

3. Management Soundness

Management is the most forward-looking indicator of condition. Management

quality of any financial institution depends on compliance with set norm, planning
ability, react to changing situation, technical competence, leadership and
administrative quality. A Sound management is the most important pre-requisite for
the strength and growth of any financial institution.

4. Earnings and Profitability

Earning is the prime sources of increasing capital of any financial institution.

Strong earnings and profitability profile of a bank reflect its ability to support

CAMELS FRAMEWORK
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present and future operations. Increased earning ensure adequate capital and
adequate capital can absorb all loses and give shareholder adequate dividends.

5. Liquidity

An adequate liquidity position refers to a situation, where an institution can obtain

sufficient funds, either by increasing liabilities or by converting its assets quickly
at a reasonable cost. It access in terms of asset and liability management. Liquidity
indicators measured as percentage of demand and time liabilities of the banks. It
means that the percentage of demand and time liabilities gets a bank as per its
liquid assets.

6. Sensitivity to Market Risk

The sensitivity to market risk is evaluated from changes in market prices, notably
interest rates, exchange rates, commodity prices, and equity prices adversely affect
a banks earnings and capital.

Objective of the Study

Primary Objective

To analyze Public sector and Private sector banks to measure their

performance by using CAMELS Framework as a measuring tool.

Secondary Objective

To explore about CAMELS Framework.

To know about the origin of CAMELS rating system.

Review of Literature

CAMELS FRAMEWORK
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Said M J and Saucier P (2003) examined the liquidity, solvency and efficiency of
Japanese Banks. Using CAMEL rating methodology, for a representative sample of
Japanese banks for the period 1993-1999, they evaluated capital adequacy, assets
and management quality, earnings ability and liquidity position. They quantified
the bank's managerial quality by calculating X-inefficiency using data envelopment
analysis (DEA). They identified the sub-group of failed or recapitalized banks with
mean tests and proximity estimates, the capacity of CAMEL variables to predict
and explaindistress.

Gasbarro, Sadguna I and Kenton J (2004) examined the changing financial

soundness of Indonesian banks during the crisis. It showed that during Indonesia's
stable economic periods, four of the five traditional CAMEL components provided
insights into the financial soundness of Indonesian banks. The panel data results
indicate the systemic economy-wide forces must be explicitly considered by the
rating system.

Sarker A (2005) examined the CAMEL Model for regulation and supervision of
Islamic banks by the central bank in Bangladesh and reviewed the CAMELS
standard set by the BASEL Committee for offsite supervision of the banking
institutions, their consistencies and inconsistencies under an Islamic setup and had
put forward a Sharia Matrix for the first time to elicit comments and suggestions
from the Sharia experts and expert Islamic bankers. This study enabled the
regulators and supervisors to get a Sharia benchmark to supervise and inspect
Islamic banks and Islamic financial institutions from an Islamic perspective. This
effort added a new 'S' to the CAMELS rating system as Sharia rating and
CAMELS has become 'CAMELSS' rating system.

Bhayani S (2006) analyzed the performance of new private sector banks with the
help of the CAMEL Model. Four leading private sector banks Industrial Credit
& Investment Corporation of India (ICICI), Housing Development Finance
Corporation (HDFC), Unit Trust of India (UTI) and Industrial Development Bank
of India (IDBI) - had been taken as a sample. After making an analysis, the author
has assigned ranks to all the banks on the basis of parameters of CAMEL Model.
The data of five years, i.e., from 2000-01 to 2004-05, were used. The findings of

CAMELS FRAMEWORK
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the study revealed that the aggregate performance of Industrial Development Bank
of India was the best among all the banks, followed by Unit Trust of India.

Gupta R K and Kaur S (2008) conducted the study with the main objective to
assess the performance of Indian Private Sector Banks on the basis of CAMEL
Model and gave rating to top five and bottom five banks. They ranked 20 old and
10 new private sector banks on the basis of CAMEL model.

They considered the financial data for the period of five years i.e. from 2003-07.
The major findings according to the Camel Model revealed that HDFC was on the
top of all the private sector banks in India followed by the Karur Vyasa Bank and
Tamilnadu Mercantile Bank. The Global Trust Bank and the Nedungadi Bank
episodes were examples for mismanagement.

Scope of the Study

Significance of performance evaluation in an organization, for sustainable growth

and development, has been recognized since long. This calls for a system that
first measures and evaluates the performance, and then brings out the strengths
and weaknesses of the organization for the purpose of further improvement. It has
been observed that the evaluation of the financial performance alone is not
sufficient for the present day organizations. The situation is not different even for
financial institutions like banks. So, this research is an attempt to describe the
need for a modern performance evaluation system for Indian banks.
Economic development of any country is mainly influenced by the growth of the
banking industry in that country. The CAMELS Model is used to judge the
performance of the bank. The model tells us about the profitability and the
soundness of the bank. It states the best performing bank according to the
parameters of the model. When, so many banks are bankrupt, it is necessary to
know the liquidity position of the bank.The CAMELS Model is a comprehensive
model that tells about the capital adequacy, asset quality, management soundness,
liquidity position and Sensitivity to market risk of a bank.

Tentative Chapter Plan

CAMELS FRAMEWORK
Page 73
1. Introduction to the study

2. Industry profile

3. Camels framework

4. Research methodology

5. Data analysis and interpretation

6. Findings and suggestion

7. Bibliography

Limitation
The CAMELS rating system suffers from some limitations. The limitations are
given below:

1. The ratings can not necessarily capture the seriousness of the situation of
banks which may be another cause of failure.

2. The CAMELS ratings only consider the internal operations. They measure
only the current financial condition of a bank. They do not consider regional
or local economic developments that may pose future problems.

3. CAMELS ratings are not forward looking and do not systematically track
long-term risk factors that may cause losses several years later.

4. Sometimes banks have to pay a lot of money to solve the unexpected

problem. This causes not only wastage of money but also gives wrong path
to the bank causes wastage of time.

Expected Contribution
The project will help us to understand the CAMELS Framework.

We are planning to compare the performance of various Public sector banks and
Private sector banks using CAMELS Framework as a measure of performance.

CAMELS FRAMEWORK
Page 74
 References
https://investopedia.com/camelrating

https://en.m.wikipedia.org/wiki/CAMELS_rating_system

http://niet.co.in/nietpfd/Camelmodel

http://researchgate.net

CAMELS FRAMEWORK
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