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Lecture 4

The document discusses the role and functions of NABARD, an apex regulatory body for agriculture and rural development in India. It oversees rural financing institutions and provides refinancing support. The document also explains the CAMEL framework for evaluating financial institutions.

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Mona Gavali
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24 views

Lecture 4

The document discusses the role and functions of NABARD, an apex regulatory body for agriculture and rural development in India. It oversees rural financing institutions and provides refinancing support. The document also explains the CAMEL framework for evaluating financial institutions.

Uploaded by

Mona Gavali
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Lecture 5

Commercial
Banking
 National Bank for Agriculture and Rural Development (NABARD) is an apex
regulatory body for overall regulation of regional rural banks and apex cooperative banks
in India.
 It is under the jurisdiction of Ministry of Finance, Government of India.
 The bank has been entrusted with "matters concerning policy, planning, and operations in
the field of credit for agriculture and other economic activities in rural areas in India".
NABARD is active in developing and implementing financial inclusion.
 NABARD has been instrumental in grounding rural, social innovations and social
enterprises in the rural hinterlands. As of May 2020
 NABARD operates at 32 Regional Offices in the country.
 It has in the process partnered with about 4000 partner organisations in grounding many of
the interventions be it, SHG-Bank Linkage programme, tree-based tribal communities’
livelihoods initiative, watershed approach in soil and water conservation, increasing crop
productivity initiatives through lead crop initiative or dissemination of information flow to
agrarian communities through Farmer clubs.
 NABARD is the most important institution in the country which looks after the
development of the cottage industry, small scale industry and village industry, and other
rural industries.
 NABARD also reaches out to allied economies and supports and promotes integrated
development.
NABARD discharge its duty by undertaking the
following roles
1. Serves as an apex financing agency for the institutions providing investment and production credit for promoting the
various developmental activities in rural areas
2. Takes measures towards institution building for improving absorptive capacity of the credit delivery system, including
monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.
3. Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and
maintains liaison with Government of India, state governments, Reserve Bank of India (RBI) and other national level
institutions concerned with policy formulation
4. Undertakes monitoring and evaluation of projects refinanced by it.
5. NABARD refinances the financial institutions which finances the rural sector.
6. NABARD partakes in development of institutions which help the rural economy.
7. NABARD also keeps a check on its client institutes.
8. It regulates the institutions which provide financial help to the rural economy.
9. It provides training facilities to the institutions working in the field of rural upliftment.
10. It regulates and supervise the cooperative banks and the RRB's, throughout entire India.
CAMEL Framework
 The CAMELS acronym stands for "Capital adequacy, Asset quality, Management,
Earnings, Liquidity, and Sensitivity
 CAMELS is an international rating system used by regulatory banking authorities to rate
financial institutions, according to the six factors represented by its acronym.
Understanding the CAMELS Rating System

 Banks that are given an average score of less than two are considered to be high-quality
institutions. Banks with scores greater than three are considered to be less-than-satisfactory
institutions. The acronym CAMELS stands for the following factors that examiners use to
rate bank institutions:
Capital Adequacy

 Examiners assess institutions' capital adequacy through capital trend analysis. Examiners
also check if institutions comply with regulations pertaining to risk-based net worth
requirements. To get a high capital adequacy rating, institutions must also comply with
interest and dividend rules and practices. Other factors involved in rating and assessing an
institution's capital adequacy are its growth plans, economic environment, ability to control
risk, and loan and investment concentrations.
Asset Quality

 Asset quality covers an institutional loan's quality, which reflects the earnings of the
institution. Assessing asset quality involves rating investment risk factors the bank may
face and balance those factors against the bank's capital earnings. This shows the stability
of the bank when faced with particular risks. Examiners also check how companies are
affected by the fair market value of investments when mirrored with the bank's book value
of investments. Lastly, asset quality is reflected by the efficiency of an institution's
investment policies and practices.
 Management
 Management assessment determines whether an institution is able to properly react to financial stress. This component
rating is reflected by the management's capability to point out, measure, look after and control risks of the institution's
daily activities. It covers management's ability to ensure the safe operation of the institution as they comply with the
necessary and applicable internal and external regulations.
 Earnings
 A bank's ability to produce earnings to be able to sustain its activities, expand, remain competitive are a key factor in
rating its continued viability. Examiners determine this by assessing the bank's earnings, earnings' growth, stability,
valuation allowances, net margins, net worth level, and the quality of the bank's existing assets.
 Liquidity
 To assess a bank's liquidity, examiners look at interest rate risk sensitivity, availability of assets that can easily be
converted to cash, dependence on short-term volatile financial resources and ALM technical competence.
Sensitivity

 Sensitivity covers how particular risk exposures can affect institutions. Examiners assess an
institution's sensitivity to market risk by monitoring the management of credit
concentrations. In this way, examiners are able to see how lending to specific industries
affects an institution. These loans include agricultural lending, medical lending, credit card
lending, and energy sector lending. Exposure to foreign exchange, commodities, equities,
and derivatives are also included in rating the sensitivity of a company to market risk.

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