PERFORMANCE ANALYSIS OF PUBLIC AND PRIVATE

SECTOR BANKS IN INDIA THROUGH CAMEL

FRAMEWORK

SYNOPSIS

Submitted to: Submitted by:

Dr. Vidya Sekhri Ankit Chaturvedi (09254)

(Professor and chairperson of Finance) Saurabh Agrawal (09283)
Pawandeep Singh (09275)

INSTITUTE OF MANAGEMENT STUDIES

LAL QUAN, GHAZIABAD – 201009

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1. INTRODUCTION

This project study seeks to appraise the performance of commercial banks in the light of the
CAMEL framework, an internationally accepted tool to assess the performance of financial
institutions. A data set of commercial banks in India for the years 2007-2010, was taken. The
performance ratio of the various components of the CAMEL were converted into composite
factor score by using the principal components analysis and ranked on the basis of quartile of
composite score.

CAMEL RATING SYSTEM

The CAMEL rating system is based upon an evaluation of five critical elements of
a credit union's operations: Capital Adequacy, Asset Quality, Management,
Earnings, and Asset/Liability Management. This rating system is designed to
take into account and reflect all significant financial, operational, and
management factors examiners assess in their evaluation of a credit union's
performance and risk profile. Examiners rate credit unions using a combination
of financial ratios (quantitative factors) and examiner judgment (qualitative
factors).

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2. OBJECTIVES:

 Performance analysis of public and private sector banks by investigating individual

financial ratios falling under the CAMEL framework.

 Comparison of various public and private sector banks operating in India in terms of
the composite score of various indicators of CAMEL framework.

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3. LITERATURE REVIEW:

CAMEL RATING
According to this, it was found that banks receiving high efficiency scores are more much
likely to survive than banks which have relatively low scores.

Keshar J. Baral (2005)

The data set published by joint venture banks in their annual reports, and NRB in its
supervision annual reports, this paper examines the financial health of joint venture banks
in the CAMEL framework. The health check up conducted on the basis of publicly
available financial data concludes that the health of joint venture banks is better than that
of the other commercial banks.

Bousaid and Saucier (2003)

They used Camel ratings on Japanese Banks for the period 1993 to 1999 and found that
CAMEL framework had the capacity to predict and exlain the distress. The study revealed
that the major problem of failed Bank was not of the inefficiency of management, but the
below standard capital adequacy and considerable problems in their assets quality.

Cole and Gunther (1998)

They found that new ( Less than 6 months old ) CAMEL rating more accurately predicted
the Bank financial distress than what the financial ratios can, but that financial ratios were
better predictors than the older ( more than 6 months old) CAMEL ratings.

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4. METHODOLOGIES

Research Design: Exploratory research

Sample Unit: In this research all the public sector banks i.e. 21 public banks and all the private
sector banks operating in India.

Sample Size: The sample size is of 42 banks

Data Collection: We will use the secondary data published by the reserve bank of india and the
PROWESS database.

Tools Used: The study is entirely based on the CAMEL framework. The financial performance
of bank in this framework is concentrated in five components: Capital adequacy, asset quality,
management efficiency, earning quality and liquidity position.

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5. REFERENCE:

 Ved Pal and Parveen Chauhan(2009), NICE Journal of Business,VOL.4(No. 2)

 Baral, K.J.,(2005), “ Health check up of Commercial Banks in the framework of
CAMEL:A case study of joint venture banks of Nepal “,The journal of Nepalese business
Studies, Vol.2,No.1,pp 44-55.
 Bousaid,M.J.and P.Saucier(2003) “ Liquidity, Solvency, Efficiency? An empirical
analysis of the Japanese Banks.20 th symposium on Banking and Monetary Economics.
(www.univ-orleans.fr/deg/GDRecomofi/…/saucier_brimingham.pdf (accessed in
august2009)
 Cole,R.A.,and J.W.Gunther (1998) ,Predicting Bank failures:Acomparision on and off
Monitoring Systems,”Journal of Financial services research vol.13,no.2.
Websites:

• http://en.wikipedia.org/wiki/List_of_banks_in_India
• www.univ-orleans.fr/deg/GDRecomofi/…/saucier_brimingham.pdf
• http://www.investopedia.com/terms/c/camelrating.asp
• http://en.wikipedia.org/wiki/CAMELS_ratings
• http://pdf.usaid.gov/pdf_docs/PNADQ079.pdf
• http://www.allbankingsolutions.com/camels.htm
• http://www.banknetindia.com/banklinks.htm

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