Literature Review

In the process of assessment of the bank’s financial stability, the administrators, researcher,
scholars and academicians have done numerous studies on the CAMEL model but in different
periods and perspectives.
Angadi & Devaraj (1983) in their study found that foreign banks occupy better position in
productivity and profitability followed by the state bank group and the 14 nationalized banks.
Social responsibilities, lack of effective mobilization of funds at lower costs, attractive retail
banking and augmenting earnings from other sources are the key reasons of deficiencies in
productivity and profitability of public sector banks.
Jain (1991) pointed out the steps to increase the productivity of banks i.e. improve the systems
and procedures, introduction of improved technology and development of the staff etc.
Cole, Rebel A. & Gunther, Jeffery, (1995) “A CAMEL Rating's Shelf Life”- their result
suggests that, off-site monitoring frequently provides a more correct sign of survivability than
its CAMEL rating, if a bank has not inspected for minimum two quarters. CAMEL is better
Rating for regular practice.
Bhattacharya, Lovell & Sahay (1997) examined the productive efficiency of 70 Indian
commercial banks during 1986-1991 i.e. the ongoing period of liberalization. Study found that
publicly-owned Indian banks are most efficient, followed by foreign-owned banks and
privately-owned Indian banks.
Basel Committee on Banking Supervision also stipulates the CAMELS components. As
regards the capital adequacy, they grouped the factors like a) size of the bank, b) volume of
inferior quality assets, c) bank’s growth experience, plans and prospects, d) quality of capital,
e) retained earnings, f) access to capital markets, and g) non-ledger assets and sound values not
shown on books (real property at nominal values, charge-offs with firm recovery values, tax
adjustments) (Sahajwala and Bergh, 2000).
Capital Adequacy indicates whether the bank has enough capital to absorb unexpected losses.
It is required to maintain depositors’ confidence and preventing the bank from going bankrupt.
In the standard CAMELS framework, capital adequacy focuses on the total risk weighted
capital intended to protect the depositors from the potential shocks of losses that a bank might
incur. It is assessed according to: the volume of risk assets, the volume of marginal and inferior
assets, bank growth experience, plans, and prospects; and the strength of management in
relation to all the above factors (Sundarajan and Errico, 2002).
Said & Saucier (2003) “Liquidity, solvency, and efficiency: An empirical analysis of the
Japanese banks’ distress” –the authors examined the solvency, efficiency and liquidity of
Banks in Japan are using the CAMEL rating methodology, for a period of 1993-1999, on the
basis of financial ratio.
Prasuna D G (2003) “Performance Snapshot 2003-04”- the author studied the performance of
65 Banks in India for the period of 2003-04 by using the CAMEL Model. The author concluded
that the consumers are benefited from innovative products, better services quality bargains in
this competitive environment.
Capital is the amount of own fund available to support the bank's business and act as a buffer
in case of adverse situation (Athanasoglou et al. 2005). However, it is not without drawbacks
that it induce weak demand for liability, the cheapest sources of fund Capital adequacy is the
level of capital required by the banks to enable them withstand the risks such as credit, market
and operational risks they are exposed to in order to absorb the potential loses and protect the
bank's debtors.
Dr.Bhayani, S. J. (2006)emphasis on the broad objective of the banking sector reforms in India
had increased efficiency and profitability of the banks. In this paper, the author had analysed
the performance of new private sector banks through the help of the CAMEL model. For the
study, four leading private sector banks- ICICI, HDFC, UTI, and IDBI – had taken as a sample.
After analysing the CAMEL parameters, the author had assigned ranks to all the banks
according to their performance in various parameters of CAMEL and then assigned them
overall ranking. It is concluded in this study that the aggregate performance of IDBI was the
best among all the banks, followed by UTI.
Gupta, R. & Kaur (2008) “A CAMEL Model Analysis of Private Sector Banks in India”-
authors conducted the study on financial data for a period of 5 years, 2003-07, to get the
performance of Private Sector Banks in India through CAMEL Model and a rating has been
given to top and bottom five banks among all 30 Indian Private banks.
Suresh.V. (2008) provided a comprehensive analysis of the components of the key indicators
of profitability, non-performing Assets, and financial performance of nationalized banks and
SBI and its associate banks by adopting CAMEL Model over the period of ten years from the
year 1997-98 to 2006-07 based on Secondary Data. This study had made use of the relevant
accounting ratios and statistical tools and techniques including the simple arithmetic mean, the
coefficient of variation and the techniques like one-way ANOVA, Multiple correlations,
Multiple Regression and Trend Analysis.
Capital adequacy ratio shows the internal strength of the bank to withstand losses during crisis.
This ratio is directly proportional to the resilience of the bank to crisis situations. It has also a
direct effect on the profitability of banks by determining its expansion to risky but profitable
ventures or areas (Sangmi and Nazir, 2010).
Uppal (2011) pointed out the efficiency and productivity of Indian Banking sector in E-Age
technology. The study uses ratio analysis for comparison of pre reform era and post reform era.
Efficiency and Productivity has been measured to seek results and concluded that e- age has an
impact on banking industry in India where private sector banks are leading and public sector
banks are lagging behind in adapting technological advancements.
Chaudhry, S & Singh.S (2012) “Impact of Reforms on the Asset Quality in Indian Banking”-
authors studied the impact of 1991 financial reforms on the soundness of Banking Sector
through its effect on the asset quality. The key factors to guarantee this soundness are effective
cost management, risk management, financial inclusion and Bank NPA levels.
Kumar (2013) studies the total factor productivity in Indian banking sector and impact of
information technology on productivity. It results that increased electronic transactions in the
banking sector leads the higher productivity.
Joshi (2013) carried away the comparison of selected public sector banks on their profitability
ratios which includes SBI, PNB, Canara Bank, Bank of Baroda and Bank of India. The study
concluded that Net operating profit ratio and PBT to net worth ratio is not similar while, Net
profit margin ratio, PAT to net income and PAT to net worth is similar for the selected banks
in India.
Dr.P.Karthikeyan, B.Shangari (2014) try to reveal the relative financial position and
performance of each bank and a comparative result over a five year period from 2009 to 2013.
In this study, top six private sector banks are selected on the basis of net profit, total assets and
market capitalization during the year 2013. The samples of banks were selected by Judgmental
sampling method and CAMEL model was selected and compared the performance of these
Banks with the help of various financial ratios and statistical tools such as Ratio Analysis,
Descriptive Statistics, Correlation, Analysis of Variance, Composite Ranking Method and
Correspondence Analysis. The entire study was based on the secondary data and it was
analytical Research Design. It was concluded in this study that HDFC bank was more efficient
than other banks. The private sector banks are as profitable as other sectors are.
Hari Krishna Karri, Kishore Meghani, Bharti Meghani Mishra (2015) attempt to analyze the
Financial Position and Performance of the Bank of Baroda and Punjab National Bank in India
based on their financial characteristics to measure the relative performance of Indian banks.
The author had chosen the CAMEL model and t-test which measures the performance of bank
from various parameters like capital adequacy, asset quality, management efficiency, earning
quality, liquidity and Sensitivity. From the CAMELS’ analysis, it was concluded in this study
that there is no significant difference between the Bank of Baroda and Punjab National Bank’s
financial performance and Punjab National Bank performance was slightly less compared with
Bank of Baroda.
Dipesh B Nathwani (2015) attempt to study the six selected banks three from public sector i.e.
State Bank of India, Bank of Baroda and Punjab National Bank and three banks from public
sector i.e. Axis Bank, HDFC Bank and ICICI Bank for a period of 10 years from 2004-05 to
2013-14 with respect to CAMEL model. This research work has been divided into six chapters
with five major CAMEL Model parameters Capital Adequacy, Asset Quality, Management
Efficiency, Earnings Quality and Liquidity. For each bank and each group, different types of
parameters used with the help of ratios to evaluate the financial performance. In this study, it
was concluded that the public sector banks are less profitable than the private sector banks in
terms of overall profitability.
Das & Patra (2016) examined the change in productivity and efficiency of public sector banks
after the financial crises of 2008. In the era of globalization, deregulation, advancement in IT
and financial sector reforms made significant changes in operating environment of banks.
Therefore, there is a need to assess the performance of productivity of Indian banking.
Maninder Kaur, Ritu Priya (2017) revealed on the evaluation of Bank of Baroda and Punjab
National banks with "CAMELS model." This Study was based on the secondary data by
covering the period of five years from the year 2011–12 to 2015–16 which was analysed by
calculating six ratios related to CAMELS model. Statistical tool t-test had used for the
evaluation of the financial performance of these two selected banks. Data was analysed
manually without using any software. In the overall study, it was concluded that financial
performance of Bank of Baroda was better than Punjab National Bank.