BANK LENDING PROJECT
CAMEL CREDI RATING SYSTEM
Submitted to: Submitted By: Dr. Anubha Gupta Abhishek Kumar PGD-FS 11-13 FT-FS-11-381 SEC-D
CAMEL Credit Rating System
The CAMEL ratings system is a method of evaluating the health of credit unions by the National Credit Union Administration(NCUA). The rating, adopted by the NCUA in 1987, is based upon five critical elements of a credit union's operations: * (C) Capital
* (A) Asset quality
* (M) Management
* (E) Earnings
* (L) asset Liability management
This rating system is designed to take into account and reflect all significant financial and operational factors examiners assess in their evaluation of a credit union's performance. Credit unions are rated using a combination of financial ratios and examiner judgment.
The CAMELS ratings or Camels rating is a United States supervisory rating of the bank's overall condition used to classify the nation’s fewer than 8,000 banks. This rating is based on financial statements of the bank and on-site examination by regulators like the Federal Reserve, the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation. The scale is from 1 to 5 with 1 being strongest and 5 being weakest. These ratings are not released to the public but only to the top management of the banking company to prevent a bank run on a bank which has a bad CAMELS rating. It is a tool being used by the United States government in response to the global financial crisis of 2008 to help it decide which banks to provide special help for and which to not as part of its capitalization program authorized by the Emergency Economic Stabilization Act of 2008. Capital Requirment:
capital requirement (also known as Regulatory capital or Capital adequacy) is the amount of capital a bank or other financial institution has to hold by its financial regulator. This is in the context of fractional reserve banking and is usually expressed as a capital adequacy ratio of liquid assets that must be held compared to the amount of money that is lent out. These requirements are put into place to ensure that these institutions are not participating or holding investments that increase the risk of default and that they have enough capital to sustain operating losses while still honoring withdrawals. Regulatory capital
In the Basel II accord bank capital has been divided into two "tiers", each with some subdivisions. Tier 1 capital
Main article: Tier 1 capital
Tier 1 capital, the more important of the two, consists largely of shareholders' equity and disclosed reserves. This is the amount paid up to originally purchase the stock (or shares) of the Bank (not the amount those shares are currently trading for on the stock exchange), retained profits subtracting accumulated losses, and other qualifiable Tier 1 capital securities (see below). In simple terms, if the original stockholders contributed $100 to buy their stock and the Bank has made $10 in retained earnings each year since, paid out no dividends, had no other forms of capital and made no losses, after 10 years the Bank's tier one capital would be $200. Shareholders equity and retained earnings are now commonly referred to as "Core" Tier 1 capital, whereas Tier 1 is core Tier 1 together with other qualifying Tier 1 capital securities. In India, the Tier 1 capital is defined as "'Tier I Capital' means "owned fund" as reduced by investment in shares of other...