Financial Evaluation of Banks using CAMEL Indicators of selected Indian Banks

Abstract Banking Sector is considered to be the back bone of any Economy and in particular to the Indian Economy this is considered to be prime sector. Two major events are considered to be rational in the Indian Banking Industry that is, Nationalization of Banks in the year 1969 and Liberalization of the Indian Economy in the year 1991. Since, 1991 the Indian Economy has grown more than 25 times in terms of GDP at market prices, the household savings also have expanded by more than 30 times. The Banking Sector has played a vital role in mobilization of savings and its effective distribution. The current study tries to explore CAMEL model to evaluate the Indian Banks and tries to assess the relative strength and weaknesses of banks in the Indian scenario. CAMEL frame work include, Capital Adequacy, Asset Quality, Management Efficiency, Earnings Quality and Liquidity. The major focus of this paper is to evaluate the Financial Performance of Banks and their sustainable growth in a dynamic financial environment. The Current Study assigns scores to each component of the CAMEL Model for the chosen banks in India. This method enables a scientific approach in studying the financial performance of banks. This method also evaluate capital base, credit portfolio, profitability and short term obligations of banks. The paper concludes that the chosen CAMEL model is an excellent diagnostic tool for measuring financial health and economic growth of banks. It highlights the need for perpetual need for supervising the capital strength, asset quality and earnings stability to ensure resilience in the Indian Banking System. The recommendations of this paper includes, the practices followed by the banks with respect to enhancement of risk management, strengthening corporate governance and improving the overall operational efficiency to maintain investor confidence and promote long term financial stability. The four factors namely, profit per employee, debt equity ratio, total assets to total deposit ratio, net NON PERFROMING ASSETS to total advances ratio are the major ratios considered to measure the financial performance of banks.