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Pak. J. Commer. Soc. Sci. 2010 Vol. 4 (1), 40-55

Analyzing Financial Performance of Commercial Banks in India: Application of CAMEL Model Prof. Dr. Mohi-ud-Din Sangmi Dean Faculty of Commerce and Management Studies University of Kashmir , Srinagar – 190006 Tel: 91-9419095039, E-Mail: sangmi_2k@yahoo.com Dr. Tabassum Nazir Assistant Manager, HDFC Bank , Srinagar Abstract Sound financial health of a bank is the guarantee not only to its depositors but is equally significant for the shareholders, employees and whole economy as well. As a sequel to this maxim, efforts have been made from time to time, to measure the financial position of each bank and manage it efficiently and effectively. In this paper, an effort has been made to evaluate the financial performance of the two major banks operating in northern India .This evaluation has been done by using CAMEL Parameters, the latest model of financial analysis. Through this model, it is highlighted that the position of the banks under study is sound and satisfactory so far as their capital adequacy, asset quality, Management capability and liquidity is concerned. Keywords: financial performance, commercial banks, capital Adequacy, asset quality, management capability, earnings analysis, liquidity analysis. 1. Introduction With the integration of Indian financial sector with the rest of the world, the concept of banks and banking has undergone a paradigm shift. Before financial reforms, Indian Banks were enjoying, in a protected environment with a strong cushion of the government and their banks. This had made them operationally inefficient and commercially almost wreck, as they had cumulated as much as Rs.37,000 Crores as Nonperforming advances. However, with the RBI taking strong measures based on the recommendations of the Narsimahan Committee, the landscape of Indian banking changed altogether. All the banks were directed to follow the norms of capital adequacy, asset quality, provisioning for NPAs, prudential norms, disclosure requirements, acceleration of pace and reach of latest technology, streamlining the procedures and complying with accounting standards and making financial statements transparent. Towards this end, they re-defined their objectives, strategies, policies, processes, methods and technologies which have a direct bearing on the financial health and performance of these banks. In this way, these banks were not only required to take the above steps but always evaluate their financial position from period to period. Because of this factor, the interest of the analysts and researchers got developed to analyze, evaluate, measure and finally manage the financial performance of the Indain banks. In this direction, the researchers like Chidambaram and Alemelu (1994),joo (1996), Sarkar and

Analyzing Bank Performance using CAMEL

Das(1997), Ajit and Bangar (1998), Bhatia and Verma (1998), Kaur and Bhatia (1998), Padmanabhan (1998), Dasgupta (2000), Desai and Farmer (2001), Edirisuriya and Fang (2001), Mittal (2001), Passah (2001), Sikander and Mukherjee (2001), Khatik (2002), Sangmi (2002), Jain (2003),Purohit,et al (2003), Kapil and Nagar (2003), Duncan et al (2004), Reddy (2004), Tabasum and Sangmi (2005) and Mohanty (2006) have attempted to make a contribution in the field. Among all these researchers, no one has used the latest technique of CAMEL Parameters to study the financial performance of the Indian banks. It is against this backdrop that the present study has been undertaken to fill up this gap. 2. Objectives The main objectives of the study are as follows :(i) (ii) (iii) to analyse the financial performance of the banks under study; to undertake the factors which have led to the current financial performance; and to suggest measures, on the basis of the study results, to improve further the financial performance of the banks under study.

3. Methodology Methodology describes the research route to be followed, the instruments to be used,...
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