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Prof. Noor Basha Abdul Ph.D
Dept. of Commerce and Business Administration, Acharya Nagarjuna University
David Raju Gollapudi MBA, M.Phil., (Ph.D)
Asst. Prof., Dept. of Business Administration, KBN College PG Centre, Vijayawada.

Narasimham Committee (set up in 1991 to make recommendations for bringing about the
necessary reforms in the financial sector) appraised and acknowledged the success and
progress of Indian banks since the major banks were nationalized on 19 July 1969.
Unfortunately, the developments were witnessed only in the field of expansion and spread of
bank branches, generation of huge employment and mobilization of savings rather than also
in improvement in efficiency. Besides, corruption, fraud, misutilization in public money,
outdated technology and politicization in policy making were found to be major drawbacks in
the real progress of the banks. The resultant ‘financial repression’ led to the decline in
productivity and efficiency and erosion of profitability of the banking sector in general. RBI
had set up a working group headed by Sh. S Padmanabhan to take a fresh look at banking
supervision during 1995. It suggested method for on-site and off-site supervision and
subsequent rating banks by RBI rating criteria. The committee suggested that supervision of
banks should focus on defined parameters of soundness, financial, managerial and
operational efficiency. Accordingly, it recommended that the banks should be rated on a 5
point scale of A to E, widely on the lines of international CAMELS (Capital Adequacy, Asset
Quality, Management Capability, Earnings, Liquidity and Sensitivity to Market Risk) rating
Key words: Camels, Capital Adequacy, Asset Quality, Market Risk Liquidity and
Sensitivity, Economic Reforms.

1. Introduction:
A sound financial system is indispensable for the growth of a healthy and vibrant economy.
The banking sector, being a crucial constituent of financial system is the lifeline of any
modern economy. It is one of the important financial pillars of the financial system which
plays a vital role in the success /failure on an economy. Banks are one of the oldest financial
intermediaries in the financial system. They play an important role in the mobilization of
deposits and disbursement of credit to various sectors of the economy. The banking system is
the fuel injection system which spurs economic efficiency by mobilizing savings and
allocating them to high return investment. Research confirms that countries with a well
developed banking system grow faster than those with a weaker one. Fase and Abma (2003)
argued that the expansion of the financial system could have a positive repercussion on
economic growth of a country. Levine (2005) suggested five channels through which
financial systems may have an effect on economic growth: Financial intermediaries, monitor
investment, manage risk, mobilise savings and facilitate the exchange of goods and services.

The CAMELS ratings or Camels rating is a supervisory rating system originally developed
in the U.S. to classify a bank's overall condition. It's applied to every bank and credit union in
the U.S. (approximately 8,000 institutions) and is also implemented outside the U.S. by
various banking supervisory regulators. Ratings are not released to the public but only to the
top management to prevent a possible bank run on an institution which receives a CAMELS
rating downgrade. 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.
Ratings are given from 1 (best) to 5 (worst) in each of the above categories. In 1979, the
Uniform Financial Institutions Rating System (UFIRS) was implemented in U.S. banking
institutions, and later globally, following a recommendation by the U.S. Federal Reserve. The
system became internationally known with the abbreviation CAMEL, reflecting five
assessment areas: Capital, Asset quality, Management, Earnings and Liquidity. In 1995 the
Federal Reserve and the OCC replaced CAMEL with CAMELS, adding the "S". This covers
an assessment of exposure to market risk and adds the 1 to 5 rating for market risk
Padmanabhan Committee appointed by RBI to recommend changes in the on-site supervision
of banks, gave its report during May 1996. As per the recommendations, the banks should be
rated on a five point scale of A to E widely on the lines of international CAMELS rating
model. The committee has suggested that supervision of banks should focus on defined
parameters of soundness, financial, managerial and operational. Based on these guidelines,
RBI has evolved this new model for rating banks based on CAMELS Each of these 6
components would be weighed on a scale of 1 to 100 and would contain several parameters
with individual weightage.

2. Brief Profiles of SBI & HSBC
2.1. SBI:
The evolution of State Bank of India can be traced back to the first decade of the
19th century. It began with the establishment of the Bank of Calcutta in Calcutta, on
2 June 1806. The bank was redesigned as the Bank of Bengal, three years later, on 2
January 1809. It was the first ever joint-stock bank of the British India, established
under the sponsorship of the Government of Bengal. Subsequently, the Bank of
Bombay (established on 15 April 1840) and the Bank of Madras (established on 1
July 1843) followed the Bank of Bengal. These three banks dominated the modern
banking scenario in India, until when they were amalgamated to form the Imperial
Bank of India, on 27 January 1921. The All India Rural Credit Survey Committee
proposed the takeover of the Imperial Bank of India, and integrating with it, the
former state-owned or state-associate banks. Subsequently, an Act was passed in the
Parliament of India in May 1955. As a result, the State Bank of India (SBI) was
established on 1 July 1955. This resulted in making the State Bank of India more
powerful, because as much as a quarter of the resources of the Indian banking system
were controlled directly by the State. Later on, the State Bank of India (Subsidiary
Banks) Act was passed in 1959. The Act enabled the State Bank of India to make the
eight former State-associated banks as its subsidiaries.
2.2.HSBC Bank:
HSBC Bank is a subsidiary of HSBC Holdings plc, a London based banking giant
which, according to the Forbes magazine, is the largest banking group in the world,
and the 6th largest company in the world as of April 2009. HSBC Holdings had been
established in Hong Kong in the year 1990 as the parent company to the Hongkong
and Shanghai Banking Corporation (HSBC). Further, the bank moved its
headquarters from Hong Kong to London.
In India, the introduction of HSBC Bank can be dated as early as the year 1853, with
the establishment of the Mercantile Bank of India in Mumbai. Currently, HSBC
Group operates through a number of its subsidiaries in India, viz. The Hongkong and
Shanghai Banking Corporation Limited (HSBC), HSBC Asset Management (India)
Private Limited, HSBC Global Resourcing / HSBC Electronic Data Processing
(India) Private Limited, HSBC Insurance Brokers (India) Private Limited, HSBC
Operations and Processing Enterprise (India) Private Limited, HSBC Private Equity
Management (Mauritius) Limited, HSBC Professional Services (India) Private
Limited, HSBC Securities and Capital Markets (India) Private Limited and HSBC
Software Development (India) Private Limited. The group carries out its Commercial
Banking, Banking Technology, Asset Management, Global Resourcing, Insurance
and Data Processing operations in the country through its subsidiaries.

3. Literature Review
Godlewski (2003) tested the validity of the CAMEL rating typology for bank's
default modelisation in emerging markets. He focused explicitly on using a logical
model applied to a database of defaulted banks in emerging markets.
Prasuna (2003) analyzed the performance of Indian banks by adopting the CAMEL
Model. The performance of 65 banks was studied for the period 2003-04. The author
concluded that the competition was tough and consumers benefited from better
services quality, innovative products and better bargains.
Derviz et al. (2008) investigated the determinants of the movements in the long term
Standard & Poor’s and CAMEL bank ratings in the Czech Republic during the period
when the three biggest bank s, representing approximately 60% of the Czech banking
sector's total assets, were privatized (i.e., the time span 1998-2001).
Maheshwara and Prasad (2011) discussed the financial performance of selected
regional rural banks during post reorganization period. The study adopted CAMEL
model to examine the overall performance of Andhra Pragathi Grameena Bank and
Sapthagiri Grameena Bank. Similarly a study on State Bank Group by Siva and
Natarajan (2011) empirically tested the applicability of CAMEL norms and its
consequential impact on the performance of SBI Groups. The study concluded that
annual CAMEL scanning helps the commercial bank to diagnose its financial health
and alert the bank to take preventive steps for its sustainability.

Objectives of the Study:
1. To analyze the financial position and performance of the State Bank of India and
HSBC using CAMEL model.
2. To give recommendations and suggestion for improvement of performance and
financial position of State Bank India and its subsidiaries.
Hypothesis of the Study
There is no significant difference in performance of SBI and HSBC as assessed by CAMEL

1. Vigneswara Swamy, Assoc. Prof., IBS, SKOCH Development Foundation, 14

Thinkers & Writers Forum, 2011
2. Parvesh Kumar Aspal, Naresh Malhotra, World Journal of Social Sciences, Vol.3
No.3, May 2013, Pp 71-88.
3. Sushendra Kumar Mishra, Parvesh Kumar Aspal, Proceedings of 19
Business Research Conference, 2012