Final Project Report On CAMELS Model

Rating The Performance of the Bank through CAMELS Model
“RATING THE PERFORMANCE OF THE BANK

THROUGH CAMELS MODEL”
MODEL
A PROJECT REPORT SUBMITTED BY
RAVI MAJITHIYA (08085)

AMIN PATTANI (08100)
BATCH – 2008-2010
TO,
Prof. Hitendra Lachhwani
In partial fulfillment of the requirements of
Tolani Institute
I of Management Studies
tudies, Adipur
For the award of the degree of
Post
ost Graduate Diploma in Management
anagement
TOLANI INSTITUTE OF MANAGEMENT STUDIES

ADIPUR – 370205
March - 2010
TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 1

ACKNOWLEDGMENT
Words are the dress of thoughts, appreciating and acknowledging those, who are
responsible for the successful completion of the project.
Our sincerity gratitude goes to Prof. Hitendra Lachhwani who assigned us responsibility
to work on this project and provided us all the help, guidance and encouragement to
complete this project.
The encouragement and guidance given by Prof. Hitendra Lachhwani have made this a
personally rewarding experience. We thank him for his support and inspiration, without
which, understanding the details of the project would have been exponentially difficult.
With Sincere Thanks,
Ravi Majithiya
Amin Pattani

DECLARATION
We hereby declare that this project work entitled to “Rating the Performance of the
Banks through CAMELS Model” for banking institutions is our work, carried out under
the guidance of our college guide, Prof. Hitendra Lachhwani. Our report neither fully nor
partially has ever been submitted for award of any other degree to either this college or any
other college.
Signature
…........…………………
Ravi Majithiya (08085)
Date: ……………………..
Place: ………………………
………………………….
Amin Pattani (08100)

PREFACE
We know that final the project is for the development and enhancement of the knowledge in
particular field. It can never be possible to make a mark in today’s competitive era only
with theoretical knowledge when industries are developing at global level, practical
knowledge of administration and management of business is very important. Hence,
practical study is of great importance to PGDM student.
With a view to expand the boundaries of thinking, we have done 4th SEM FINAL
PROJECT at three banks i.e. AXIS bank, Gandhidham Co-operative Bank and Bank of
India. We have made deliberate efforts to collect the required information and fulfill project
objectives.

EXECUTIVE SUMMARY
In today’s scenario, the banking sector is one of the fastest growing sector and a lot of funds
are invested in Banks. Also today’s banking system is becoming more complex. So, we
thought of evaluating the performance of the banks. There are so many models of
evaluating the performance of the banks, but we have chosen the CAMELS Model to
evaluate the performance of the banks. We have read a lot of books and found it the best
model because it measures the performance of the banks from each parameter i.e. Capital,
Assets, Management, Earnings and Liquidity
After deciding the model, we have chosen three banks from the three different sectors, i.e.
AXIS Bank from Private Sector, Gandhidham Co-operative Bank from co-operative banks
and Bank of India from the public sector. Then we have collected annual reports of the
consecutive five years i.e. 2004-05 to 2008-09 of all the banks. And we have calculated
ratios for all the banks and interpreted them.
After that we have given weightage to each parameter of the CAMELS

Model. According to their importance and our understandings, we have allocated weightage
to the each ratios of the each parameter. From the weighted results of each ratio, we have
given marks on the bases of the performance of the bank. And after addition of all the
marks, we have given the rank 1, 2 and 3 to the banks.
As per the whole evaluation, we gave 1st rank to AXIS Bank, 2nd rank to Bank of India and
3rd rank to Gandhidham Co-operative Bank.

CONTENTS
Particulars Page No.

Chapter – 1 INTRODUCTION OF BANKING SECTOR 10
1.1) The Bank 11
1.2) The Origin and Use of Banks 11
1.3) Banking Reform 12
1.4) BASEL – II Accord 14
Chapter – 2 INTRODUCTION TO THE BANKS UNDER
18
THE STUDY
2.1) AXIS Bank 19
2.2) Bank of India 21
2.3) Gandhidham Co-operative Bank 23
Chapter – 3 CAMELS FRAMEWORK 25
3.1) C - Capital Adequacy 26
3.2) A - Asset Quality 28
3.3) M - Management 30
3.4) E - Earning 31
3.5) L - Liquidity 34
3.6) S - Sensitivity to Market Risk 36
Chapter – 4 LITRATURE REVIEW 39
Chapter – 5 OBJECTIVE & METHODOLOGY 43
5.1) Objective of the Study 43
5.2) Methodology Adopted 45
5.3) Limitations 47
Chapter – 6 DATA INTERPRETATION AND ANALYSIS 48
6.1) Data Interpretation 49
6.2) Analysis 82
Chapter – 7 CONCLUSION, SUGGESTIONS AND
89
RECOMMENDATION
7.1) Conclusion 91
7.2) Suggestions and Recommendation 92
BIBLIOGRAPHY 93
ANNEXURE 94

LIST OF TABLES:

TABLE – 1) Capital Risk Adequacy Ratio 49
TABLE – 2) Debt Equity Ratio 51
TABLE – 3) Total Advance to Total Asset Ratio 52
TABLE – 4) Government Securities to Total Asset Ratio 54
TABLE – 5) Gross NPA to Total Loan 56
TABLE – 6) Net NPA to Total Loan 58
TABLE – 7) Total Advance to Total Deposits 60
TABLE – 8) Business per Employee 62
TABLE – 9) Profit per Employee 64
TABLE – 10) Dividend Payout Ratio 65
TABLE – 11) Return on Asset 66
TABLE – 12) Operating Profit to Average Working Fund 67
TABLE – 13) Net Profit to Average Asset 68
TABLE – 14) Interest Income to Total Income 69
TABLE – 15) Other Income to Total Income 71
TABLE – 16) Liquid Asset to Total Asset 73
TABLE – 17) Government Security to Total Security 75
TABLE – 18) Approved Security to Total Security 77
TABLE – 19) Liquidity Asset to Demand Deposit 79
TABLE – 20) Liquidity Asset to Total Deposit 81
TABLE - 21) Component Weightage 82
TABLE – 22) Ratio Wise Weightage 83
TABLE – 23) Capital Adequacy (Frequency) 84
TABLE – 24) Asset Quality (Frequency) 84
TABLE – 25) Management Quality (Frequency) 84
TABLE – 26) Earning Quality (Frequency) 85
TABLE – 27) Liquidity (Frequency) 85
TABLE – 28) Capital Adequacy (Marks) 86
TABLE – 29) Asset Quality (Marks) 86
TABLE – 30) Management Quality (Marks) 87
TABLE – 31) Earning Quality (Marks) 87

TABLE – 32) Liquidity (Marks) 88

TABLE – 33) Overall Ranking 88
LIST OF CHARTS:

CHART – 1) Capital Risk Adequacy Ratio 49
CHART – 2) Debt Equity Ratio 51
CHART – 3) Total Advance to Total Asset Ratio 52
CHART – 4) Government Securities to Total Asset Ratio 54
CHART – 5) Gross NPA to Total Loan 56
CHART – 6) Net NPA to Total Loan 58
CHART – 7) Total Advance to Total Deposits 60
CHART – 8) Business per Employee 62
CHART – 9) Profit per Employee 64
CHART – 10) Dividend Payout Ratio 65
CHART – 11) Return on Asset 66
CHART – 12) Operating Profit to Average Working Fund 67
CHART – 13) Net Profit to Average Asset 68
CHART – 14) Interest Income to Total Income 69
CHART – 15) Other Income to Total Income 71
CHART – 16) Liquid Asset to Total Asset 73
CHART – 17) Government Security to Total Security 75
CHART – 18) Approved Security to Total Security 77
CHART – 19) Liquidity Asset to Demand Deposit 79
CHART – 20) Liquidity Asset to Total Deposit 81

ABBREVIATIONS
BOI – Bank of India
CAMELS – Capital Adequacy, Asset Quality, Management, Earning, Liquidity, Sensitivity

to Market Risk
CRAR – Capital Risk Adequacy Ratio
CRR – Cash Reserve Ratio
GCB – Gandhidham Co-Operative Bank
GIC – General Insurance Corporation
G-Sec – Government Securities
IRB – Internal Rating Based Approach
LIC – Life Insurance Corporation
NII – Net Interest Income
NIM – Net Interest Margin
NPA – Non Performing Asset
RBI – Reserve Bank of India
ROA – Return on Asset
SLR – Statutory Liquidity Ratio
VaR – Value at Risk
YoY – Year on Year

Chapter – 1
INTRODUCTION OF BANKING
SECTOR

1.1) The Bank
The word bank means an organization where people and business can invest or borrow
money; change it to foreign currency etc. According to Halsbury “A Banker is an
individual, Partnership or Corporation whose sole pre-dominant business is banking, that is
the receipt of money on current or deposit account, and the payment of cheque drawn and
the collection of cheque paid in by a customer.’’
1.2) The Origin and Use of Banks
The Word ‘Bank’ is derived from the Italian word ‘Banko’ signifying a bench, which was
erected in the market-place, where it was customary to exchange money. The Lombard
Jews were the first to practice this exchange business, the first bench having been
established in Italy A.D. 808. Some authorities assert that the Lombard merchants
commenced the business of money-dealing, employing bills of exchange as remittances,
about the beginning of the thirteenth century.
About the middle of the twelfth century it became evident, as the advantage of coined
money was gradually acknowledged, that there must be some controlling power, some
corporation which would undertake to keep the coins that were to bear the royal stamp up to
a certain standard of value; as, independently of the ‘sweating’ which invention may place
to the credit of the ingenuity of the Lombard merchants- all coins will, by wear or abrasion,
become thinner, and consequently less valuable; and it is of the last importance, not only for
the credit of a country, but for the easier regulation of commercial transactions, that the
metallic currency be kept as nearly as possible up to the legal standard. Much unnecessary
trouble and annoyance has been caused formerly by negligence in this respect. The gradual
merging of the business of a goldsmith into a bank appears to have been the way in which
banking, as we now understand the term, was introduced into England; and it was not until
long after the establishment of banks in other countries-for state purposes, the regulation of
the coinage, etc. that any large or similar institution was introduced into England. It is only
within the last twenty years that printed cheques have been in use in that establishment.
First commercial bank was Bank of Venice which was established in 1157 in Italy.

1.3) THE BANKING REFORMS
In 1991, the Indian economy went through a process of economic liberalization, which was
followed up by the initiation of fundamental reforms in the banking sector in 1992. The
banking reform package was based on the recommendations proposed by the Narasimham
Committee Report (1991) that advocated a move to a more market oriented banking system,
which would operate in an environment of prudential regulation and transparent accounting.
One of the primary motives behind this drive was to introduce an element of market
discipline into the regulatory process that would reinforce the supervisory effort of the
Reserve Bank of India (RBI). Market discipline, especially in the financial liberalization
phase, reinforces regulatory and supervisory efforts and provides a strong incentive to banks
to conduct their business in a prudent and efficient manner and to maintain adequate capital
as a cushion against risk exposures. Recognizing that the success of economic reforms was
contingent on the success of financial sector reform as well, the government initiated a
fundamental banking sector reform package in 1992.
Banking sector, the world over, is known for the adoption of multidimensional strategies
from time to time with varying degrees of success. Banks are very important for the smooth
functioning of financial markets as they serve as repositories of vital financial information
and can potentially alleviate the problems created by information asymmetries. From a
central bank’s perspective, such high-quality disclosures help the early detection of
problems faced by banks in the market and reduce the severity of market disruptions.
Consequently, the RBI as part and parcel of the financial sector deregulation, attempted to
enhance the transparency of the annual reports of Indian banks by, among other things,
introducing stricter income recognition and asset classification rules, enhancing the capital
adequacy norms, and by requiring a number of additional disclosures sought by investors to
make better cash flow and risk assessments.
During the pre economic reforms period, commercial banks & development financial
institutions were functioning distinctly, the former specializing in short & medium term
financing, while the latter on long term lending & project financing. Commercial banks
were accessing short term low cost funds thru savings investments like current accounts,
savings bank accounts & short duration fixed deposits, besides collection float.
Development Financial Institutions (DFIs) on the other hand, were essentially depending on

budget allocations for long term lending at a concessionary rate of interest. The scenario has
changed radically during the post reforms period, with the resolve of the government not to
fund the DFIs through budget allocations. DFIs like IDBI, IFCI & ICICI had posted dismal
financial results. Infect, their very viability has become a question mark. Now, they have
taken the route of reverse merger with IDBI bank & ICICI bank thus converting them into
the universal banking system.

1.4) BASEL - II ACCORD
Bank capital framework sponsored by the world's central banks designed to promote
uniformity, make regulatory capital more risk sensitive, and promote enhanced risk
management among large, internationally active banking organizations. The International
Capital Accord, as it is called, will be fully effective by January 2008 for banks active in
international markets. Other banks can choose to "opt in," or they can continue to follow the
minimum capital guidelines in the original Basel Accord, finalized in 1988. The revised
accord (Basel II) completely overhauls the 1988 Basel Accord and is based on three
mutually supporting concepts, or "pillars," of capital adequacy. The first of these pillars is
an explicitly defined regulatory capital requirement, a minimum capital-to-asset ratio equal
to at least 8% of risk-weighted assets. Second, bank supervisory agencies, such as the
Comptroller of the Currency, have authority to adjust capital levels for individual banks
above the 9% minimum when necessary. The third supporting pillar calls upon market
discipline to supplement reviews by banking agencies.
Basel II is the second of the Basel Accords, which are recommendations on banking laws
and regulations issued by the Basel Committee on Banking Supervision. The purpose of
Basel II, which was initially published in June 2004, is to create an international standard
that banking regulators can use when creating regulations about how much capital banks
need to put aside to guard against the types of financial and operational risks banks face.
Advocates of Basel II believe that such an international standard can help protect the
international financial system from the types of problems that might arise should a major
bank or a series of banks collapse. In practice, Basel II attempts to accomplish this by
setting up rigorous risk and capital management requirements designed to ensure that a
bank holds capital reserves appropriate to the risk the bank exposes itself to through its
lending and investment practices. Generally speaking, these rules mean that the greater risk
to which the bank is exposed, the greater the amount of capital the bank needs to hold to
safeguard its solvency and overall economic stability.

The final version aims at:
1. Ensuring that capital allocation is more risk sensitive;

2. Separating operational risk from credit risk, and quantifying both;
3. Attempting to align economic and regulatory capital more closely to reduce the scope
for regulatory arbitrage.
While the final accord has largely addressed the regulatory arbitrage issue, there are still
areas where regulatory capital requirements will diverge from the economic.
Basel II has largely left unchanged the question of how to actually define bank capital,
which diverges from accounting equity in important respects. The Basel I definition, as
modified up to the present, remains in place.
The Accord in operation
Basel II uses a "three pillars" concept – (1) minimum capital requirements (addressing risk),
(2) supervisory review and (3) market discipline – to promote greater stability in the
financial system.
The Basel I accord dealt with only parts of each of these pillars. For example: with respect
to the first Basel II pillar, only one risk, credit risk, was dealt with in a simple manner while
market risk was an afterthought; operational risk was not dealt with at all.
The First Pillar
The first pillar deals with maintenance of regulatory capital calculated for three major
components of risk that a bank faces: credit risk, operational risk and market risk. Other
risks are not considered fully quantifiable at this stage.
The credit risk component can be calculated in three different ways of varying degree of
sophistication, namely standardized approach, Foundation IRB and Advanced IRB. IRB
stands for "Internal Rating-Based Approach".
For operational risk, there are three different approaches - basic indicator approach,
standardized approach and advanced measurement approach. For market risk the preferred
approach is VaR (value at risk).

NEW ACCORD
Minimum Supervisory Market
Capital Review Disclosure
Credit Risk Supervisory Mandates increased

Assessment of Bank minimum public
More risk sensitivity disclosure of bank's
Risk Management
risk information.
Policies and Practices
Operating Risk
Economic Capital
New Process
Canresult in additional
Trading Market Risk capital requirments
Unchanged
PILLAR - I PILLAR - II PILLAR - III
As the Basel II recommendations are phased in by the banking industry it will move from
standardized
ed requirements to more refined and specific requirements that have been
developed for each risk category by each individual bank. The upside for banks that do
develop their own bespoke risk measurement systems is that they will be rewarded with
potentially lower risk capital requirements. In future there will be closer links between the
concepts of economic profit and regulatory capital.
Credit Risk can be calculated by using

usin one of three approaches..
1. Standardized Approach
2. Foundation IRB (Internal Ratings Based) Approach
3. Advanced IRB Approach

The standardized approach sets out specific risk weights for certain types of credit risk. The
standard risk weight categories are used under Basel 1 and are 0% for short term
government bonds, 20% for exposures to OECD Banks, 50% for residential mortgages and
100% weighting on commercial loans. A new 150% rating comes in for borrowers with
poor credit ratings. The minimum capital requirement (the percentage of risk weighted
assets to be held as capital) has remains at 8%.
For those Banks that decide to adopt the standardized ratings approach they will be forced
to rely on the ratings generated by external agencies. Certain Banks are developing the IRB
approach as a result.
The Second Pillar
The second pillar deals with the regulatory response to the first pillar, giving regulators
much improved 'tools' over those available to them under Basel I. It also provides a
framework for dealing with all the other risks a bank may face, such as systemic risk,
pension risk, concentration risk, strategic risk, reputation risk, liquidity risk and legal risk,
which the accord combines under the title of residual risk. It gives banks a power to review
their risk management system.
The Third Pillar
The third pillar greatly increases the disclosures that the bank must make. This is designed
to allow the market to have a better picture of the overall risk position of the bank and to
allow the counterparties of the bank to price and deal appropriately. The new Basel Accord
has its foundation on three mutually reinforcing pillars that allow banks and bank
supervisors to evaluate properly the various risks that banks face and realign regulatory
capital more closely with underlying risks. The first pillar is compatible with the credit risk,
market risk and operational risk. The regulatory capital will be focused on these three risks.
The second pillar gives the bank responsibility to exercise the best ways to manage the risk
specific to that bank. Concurrently, it also casts responsibility on the supervisors to review
and validate banks’ risk measurement models. The third pillar on market discipline is used
to leverage the influence that other market players can bring. This is aimed at improving the
transparency in banks and improves reporting.

Chapter – 2
INTRODUCTION OF THE BANKS
UNDER THE STUDY

2.1) AXIS Bank

Axis Bank was the first of the new private banks to have begun operations in 1994, after the
Government of India allowed new private banks to be established. The Bank was promoted
jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I),
Life Insurance Corporation of India (LIC) and General Insurance Corporation of India
(GIC) and other four PSU insurance companies, i.e. National Insurance Company Ltd., The
New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United
India Insurance Company Ltd.
The Bank today is capitalized to the extent of Rs. 401.95 crore with the public holding
(other than promoters) at 53.23%.
The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai.
The Bank has a very wide network of more than 905 branches and Extension Counters (as
on 30th September 2009). The Bank has a network of over 3894 ATMs (as on 30th
September 2009) providing 24 hrs a day banking convenience to its customers. This is one
of the largest ATM networks in the country.
The Bank has strengths in both retail and corporate banking and is committed to adopting
the best industry practices internationally in order to achieve excellence.
Board of Directors
The members of the Board are:
Smt. Shikha Sharma Managing Director & CEO

Shri M. M. Agrawal Deputy Managing Director (Designate)
Shri N.C. Singhal Director
Shri J.R. Varma Director
Dr. R.H. Patil Director
Smt. Rama Bijapurkar Director
Shri R.B.L. Vaish Director
Shri M.V. Subbiah Director
Shri K. N. Prithviraj Director
Shri V. R. Kaundinya Director

Mission
Ø Customer Service and Product Innovation tuned to diverse needs of individual and
corporate clientele.
Ø Continuous technology up gradation while maintaining human values.
Ø Progressive globalization and achieving international standards.
Ø Efficiency and effectiveness built on ethical practices.
Core Values
Ø Customer Satisfaction through providing quality service effectively and efficiently.

Ø "Smile, it enhances your face value" is a service quality stressed on Periodic Customer
Service.
Ø Audits Maximization of Stakeholder value Success through Teamwork, Integrity and
People.

2.2) BANK OF INDIA
Bank of India was founded on 7th September, 1906 by a group of eminent businessmen
from Mumbai. The Bank was under private ownership and control till July 1969 when it
was nationalized along with 13 other banks.
Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50
employees, the Bank has made a rapid growth over the years and blossomed into a mighty
institution with a strong national presence and sizable international operations. In business
volume, the Bank occupies a premier position among the nationalised banks.
The Bank has 3101 branches in India spread over all states/ union territories including 141
specialized branches. These branches are controlled through 48 Zonal Offices . There are 29
branches/ offices (including three representative offices) abroad.
The Bank came out with its maiden public issue in 1997 and follow on Qualified
Institutions Placement in February 2008. . Total number of shareholders as on 30/09/2009 is
Rs. 2,15,790.
While firmly adhering to a policy of prudence and caution, the Bank has been in the
forefront of introducing various innovative services and systems. Business has been
conducted with the successful blend of traditional values and ethics and the most modern
infrastructure. The Bank has been the first among the nationalized banks to establish a fully
computerized branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in
1989. The Bank is also a Founder Member of SWIFT in India. It pioneered the introduction
of the Health Code System in 1982, for evaluating/ rating its credit portfolio.
The Bank's association with the capital market goes back to 1921 when it entered into an
agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It
is an association that has blossomed into a joint venture with BSE, called the BOI
Shareholding Ltd. to extend depository services to the stock broking community. Bank of
India was the first Indian Bank to open a branch outside the country, at London, in 1946,
and also the first to open a branch in Europe, Paris in 1974. The Bank has sizable presence
abroad, with a network of 29 branches (including five representative offices) at key banking
and financial centers viz. London, Newyork, Paris, Tokyo, Hong-Kong and Singapore. The
international business accounts for around 17.82% of Bank's total business.

Mission
"To provide superior, proactive banking services to niche markets globally, while providing
cost-effective, responsive services to others in our role as a development bank, and in so
doing, meet the requirements of our stakeholders".
Vision
"To become the bank of choice for corporate, medium businesses and up market retail
customers and to provide cost effective developmental banking for small business, mass
market and rural markets"
Board of Directors:
The members of the Board are:
Shri. Alok Kumar Misra Chairman & Managing Director

Shri B. A. Prabhakar Executive Director
Shri M. Narendra Executive Director
Shri Tarun Bajaj Govt. Nominee Director
Shri A.V.Sardesai RBI Nominee Director
Shri A.K.Motayed Officer Employee Director
Shri K. S. Sampath Part-Time Non-Official Director
Shri Indresh Vikram Singh Part-Time Non-Official Director
Shri M.N. Gopinath Shareholder Director
Shri Prakash P. Mallya, Shareholder Director
Shri P.M. Sirajuddin Shareholder Director
Dr. Shantaben Chavda Part-time Non-Official Director

2.3) THE GANDHIDHAM CO-OPERATIVE BANK LTD.
“The oldest Bank at Gandhidham Established by the Founder of the city for
Small But ultimately made Big by you all.”
It’s Milestones:-
§ Oldest bank in Gandhidham Township established in 1951.

§ Fully Computerized and Centrally Air Conditioned premises.
§ Divided Track Record: -15% continuously since 15 years (Max. permissible) Audit
Classification “A” since 15 years.
§ Total Advance Rs.72.79 Crores.
§ Share Capital Rs.4.94 Crores.
§ Profit before Income Tax Rs.2.33 Crores.
§ Total Deposit Rs.125.63 Crores.
§ Working Capital Rs. 4.94 Crores.
§ Reserves and Surplus Rs. 24.58 Crores.
Facilities Offered to The Valued Share Holders and Depositors: -
§ Prizes/Scholarship to Children of Shareholders.

§ Medical Facility to Shareholders.
§ A lump sum grant of Rs. 10,000/- on unfortunate death of a Shareholder.
§ In case of unfortunate death of Shareholder in Accident, a lump sum grant of
Rs.50,000/-
§ Personalized service and attractive Saving Scheme.
§ Safe Deposit Locker Facility at Head Office and Branch Office.
§ Special Interest Rates for Senior Citizens.
§ D.D. Facility for locations all over India.
§ Facility of collection of Electricity (PGVCL) Bills & Modern School Fees.
§ Deposit up to Rs.1,00,000/- is insured with the Deposit Insurance and Credit Guarantee
Corporation.
§ Franking Machine facility available at Gandhidham Branch for payment of Stamp Duty.

0% Interest Loan under Scheme – “Flood IT KG TO PG”
To contribute towards computer literacy, Gujarat Urban Co-operative Bank federation

launched 0 % Interest loan scheme for purchase of Computers/Laptops on discounted rate
under FLOOD IT KG TO PG and the honorable chief minister Narendra Modi on 10th Feb.
2009 inaugurated the same. This facility is granted to the banks shareholders as well as
customers for purchase of computer/laptops for their children’s.
Welfare Activities and Programmed for the Valued Shareholders
§ Under the Benevolent Programmed of welfare of members, the bank had introduced a
scheme, according to which in the event of the death of the shareholders, who had
remained continuously the member of the bank for the last four years, the family of
deceased will be paid a lump sum grant of Rs. 10,000 by the Bank and Rs 50,000 will
be granted in the case of an accidental death. During the year, 68 shareholders have been
granted the benefit under above scheme and the total expenditure incurred during the
year was Rs. 8,00,000.
§ The bank has increased a number of medical centers to enable member to avail services
from their nearby places in case of Nil. The total expenditure incurred during the year
on the medical aid was Rs. 8,30,000.
§ It has been bank’s endeavor to encourage the children of Shareholders in their academic
pursuits. In this context the cash prizes are awarded every year to the meritorious
students who secure highest marks in SSC and higher examination. The scheme of
payment of scholarship to the excel student has also been liberalized. Accordingly, the
children of shareholders studying after 12th up to graduate anywhere in India are also
entitled to get the benefit of scholarship.
§ As usual, this year too, the bank has significantly contributed and encouraged social,
religious and other activities in the form of donation, prizes, and advertisement etc. for
the benefit of general public of Adipur/Gandhidham Township.
Technology Development
Due to up-gradation of software of the computers of the Banks it has been possible to link
both Adipur/Gandhidham branch online (Core Banking Solution). After this up-gradation,
the customers will be able to transact at any of the branches for account maintain whether
HO or Branch which leads to the saving of Time and Energy of all valued customers,
shareholders and Depositors.

Chapter – 3
CAMELS FRAMEWORK

CAMELS FRAMEWORK
During an on-site bank exam, supervisors gather private information, such as details on
problem loans, with which to evaluate a bank's financial condition and to monitor its
compliance with laws and regulatory policies. A key product of such an exam is a
supervisory rating of the bank's overall condition, commonly referred to as a CAMELS
rating. The acronym "CAMEL" refers to the five components of a bank's condition that are
assessed: Capital adequacy, Asset quality, Management, Earnings, and Liquidity. A sixth
component, a bank's Sensitivity to market risk was added in 1997; hence the acronym was
changed to CAMELS.
CAMELS is basically a ratio-based model for evaluating the performance of banks. Various
ratios forming this model are explained below:
3.1) C- Capital Adequacy:
Capital base of financial institutions facilitates depositors in forming their risk perception
about the institutions. Also, it is the key parameter for financial managers to maintain
adequate levels of capitalization. Moreover, besides absorbing unanticipated shocks, it
signals that the institution will continue to honor its obligations. The most widely used
indicator of capital adequacy is capital to risk-weighted assets ratio (CRWA). According to
Bank Supervision Regulation Committee (The Basle Committee) of Bank for International
Settlements, a minimum 9 percent CRWA is required.
Capital adequacy ultimately determines how well financial institutions can cope with
shocks to their balance sheets. Thus, it is useful to track capital-adequacy ratios that take
into account the most important financial risks—foreign exchange, credit, and interest rate
risks—by assigning risk weightings to the institution’s assets.
A sound capital base strengthens confidence of depositors. This ratio is used to protect
depositors and promote the stability and efficiency of financial systems around the world.
The following ratios measure capital adequacy:

Ø Capital Risk Adequacy Ratio:
CRAR is a ratio of Capital Fund to Risk Weighted Assets. Reserve Bank of India prescribes
Banks to maintain a minimum Capital to risk-weighted Assets Ratio (CRAR) of 9 % with
regard to credit risk, market risk and operational risk on an ongoing basis, as against 8 %
prescribed in Basel documents.
Total capital includes tier-I capital and Tier-II capital. Tier-I capital includes paid up equity
capital, free reserves, intangible assets etc. Tier-II capital includes long term unsecured
loans, loss reserves, hybrid debt capital instruments etc. The higher the CRAR, the stronger
is considered a bank, as it ensures high safety against bankruptcy.
CRAR = Capital/ Total Risk Weighted Credit Exposure
Ø Debt Equity Ratio:
This ratio indicates the degree of leverage of a bank. It indicates how much of the bank
business is financed through debt and how much through equity. This is calculated as the
proportion of total asset liability to net worth. ‘Outside liability’ includes total borrowing,
deposits and other liabilities. ‘Net worth’ includes equity capital and reserve and surplus.
Higher the ratio indicates less protection for the creditors and depositors in the banking
system.
Borrowings/ (Share Capital + reserves)
Ø Total Advance to Total Asset Ratio:
This is the ratio of the total advanced to total asset. This ratio indicates banks
aggressiveness in lending which ultimately results in better profitability. Higher ratio of
advances of bank deposits (assets) is preferred to a lower one. Total advances also include
receivables. The value of total assets is excluding the revolution of all the assets.
Total Advances/ Total Asset

Ø Government Securities to Total Investments:
The percentage of investment in government securities to total investment is a very

important indicator, which shows the risk taking ability of the bank. It indicates a bank’s
strategy as being high profit high risk or low profit low risk. It also gives a view as to the
availability of alternative investment opportunities. Government securities are generally
considered as the most safe debt instrument, which, as a result, carries the lowest return.
Since government securities are risk free, the higher the government security to investment
ratio, the lower the risk involved in a bank’s investments.
Government Securities/ Total Investment
3.2) A – Asset Quality:
Asset quality determines the healthiness of financial institutions against loss of value in the
assets. The weakening value of assets, being prime source of banking problems, directly
pour into other areas, as losses are eventually written-off against capital, which ultimately
expose the earning capacity of the institution. With this backdrop, the asset quality is
gauged in relation to the level and severity of non-performing assets, adequacy of
provisions, recoveries, distribution of assets etc. Popular indicators include nonperforming
loans to advances, loan default to total advances, and recoveries to loan default ratios.
The solvency of financial institutions typically is at risk when their assets become impaired,
so it is important to monitor indicators of the quality of their assets in terms of overexposure
to specific risks, trends in nonperforming loans, and the health and profitability of bank
borrowers— especially the corporate sector. Share of bank assets in the aggregate financial
sector assets: In most emerging markets, banking sector assets comprise well over 80 per
cent of total financial sector assets, whereas these figures are much lower in the developed
economies. Furthermore, deposits as a share of total bank liabilities have declined since
1990 in many developed countries, while in developing countries public deposits continue
to be dominant in banks. In India, the share of banking assets in total financial sector assets
is around 75 per cent, as of end-March 2008. There is, no doubt, merit in recognizing the
importance of diversification in the institutional and instrument-specific aspects of financial
intermediation in the interests of wider choice, competition and stability. However, the
dominant role of banks in financial intermediation in emerging economies and particularly

in India will continue in the medium-term; and the banks will continue to be “special” for a
long time. In this regard, it is useful to emphasize the dominance of banks in the developing
countries in promoting non-bank financial intermediaries and services including in
development of debt-markets. Even where role of banks is apparently diminishing in
emerging markets, substantively, they continue to play a leading role in non-banking
financing activities, including the development of financial markets.
One of the indicators for asset quality is the ratio of non-performing loans to total loans.
Higher ratio is indicative of poor credit decision-making.
NPA: Non-Performing Assets:
Advances are classified into performing and non-performing advances (NPAs) as per RBI
guidelines. NPAs are further classified into sub-standard, doubtful and loss assets based on
the criteria stipulated by RBI. An asset, including a leased asset, becomes nonperforming
when it ceases to generate income for the Bank.
An NPA is a loan or an advance where:
1. Interest and/or installment of principal remains overdue for a period of more than 90
days in respect of a term loan;
2. The account remains "out-of-order'' in respect of an Overdraft or Cash Credit
(OD/CC);
3. The bill remains overdue for a period of more than 90 days in case of bills purchased
and discounted;
4. A loan granted for short duration crops will be treated as an NPA if the installments
of principal or interest thereon remain overdue for two crop seasons; and
5. A loan granted for long duration crops will be treated as an NPA if the installments
of principal or interest thereon remain overdue for one crop season.
The Bank classifies an account as an NPA only if the interest imposed during any quarter is
not fully repaid within 90 days from the end of the relevant quarter. This is a key to the
stability of the banking sector. There should be no hesitation in stating that Indian banks
have done a remarkable job in containment of non-performing loans (NPL) considering the
overhang issues and overall difficult environment.

The following ratios are necessary to assess the asset quality.
Ø Gross NPA ratio:
This ratio is used to check whether the bank's gross NPAs are increasing quarter on quarter
or year on year. If it is, indicating that the bank is adding a fresh stock of bad loans. It
would mean the bank is either not exercising enough caution when offering loans or is too
lax in terms of following up with borrowers on timely repayments.
Gross NPA/ Total Loan
Ø Net NPA ratio:
Net NPAs reflect the performance of banks. A high level of NPAs suggests high probability
of a large number of credit defaults that affect the profitability and net-worth of banks and
also wear down the value of the asset.
Loans and advances usually represent the largest asset of most of the banks. It monitors the
quality of the banks loan portfolio. The higher the ratio, the higher the credits risk.
Net NPA/ Total Loan
3.3) M – Management:
Management of financial institution is generally evaluated in terms of capital adequacy,

asset quality, earnings and profitability, liquidity and risk sensitivity ratings. In addition,
performance evaluation includes compliance with set norms, ability to plan and react to
changing circumstances, technical competence, leadership and administrative ability.
Sound management is one of the most important factors behind financial institutions’
performance. Indicators of quality of management, however, are primarily applicable to
individual institutions, and cannot be easily aggregated across the sector. Furthermore,
given the qualitative nature of management, it is difficult to judge its soundness just by
looking at financial accounts of the banks.
Nevertheless, total advance to total deposit, business per employee and profit per employee
helps in gauging the management quality of the banking institutions. Several indicators,
however, can jointly serve—as, for instance, efficiency measures do—as an indicator of
management soundness. The ratios used to evaluate management efficiency are described as
under:
Ø Total Advance to Total Deposit Ratio:
This ratio measures the efficiency and ability of the banks management in converting the
deposits available with the banks (excluding other funds like equity capital, etc.) into high
earning advances. Total deposits include demand deposits, saving deposits, term deposit and
deposit of other bank. Total advances also include the receivables.
Total Advance/ Total Deposit
Ø Business per Employee:
Revenue per employee is a measure of how efficiently a particular bank is utilizing its
employees. Ideally, a bank wants the highest business per employee possible, as it denotes
higher productivity. In general, rising revenue per employee is a positive sign that suggests
the bank is finding ways to squeeze more sales/revenues out of each of its employee.
Total Income/ No. of Employees
Ø Profit per Employee:
This ratio shows the surplus earned per employee. It is arrived at by dividing profit after tax
earned by the bank by the total number of employee. The higher the ratio shows good
efficiency of the management.
Profit after Tax/ No. of Employees
3.4) E – Earning & Profitability:
Earnings and profitability, the prime source of increase in capital base, is examined with
regards to interest rate policies and adequacy of provisioning. In addition, it also helps to
support present and future operations of the institutions. The single best indicator used to
gauge earning is the Return on Assets (ROA), which is net income after taxes to total asset
ratio.

Strong earnings and profitability profile of banks reflects the ability to support present and
future operations. More specifically, this determines the capacity to absorb losses, finance
its expansion, pay dividends to its shareholders, and build up an adequate level of capital.
Being front line of defense against erosion of capital base from losses, the need for high
earnings and profitability can hardly be overemphasized. Although different indicators are
used to serve the purpose, the best and most widely used indicator is Return on Assets
(ROA).
However, for in-depth analysis, another indicator Interest Income to Total Income and
Other income to Total Income is also in used. Compared with most other indicators, trends
in profitability can be more difficult to interpret—for instance, unusually high profitability
can reflect excessive risk taking. The following ratios try to assess the quality of income in
terms of income generated by core activity – income from landing operations.
Ø Dividend Payout Ratio:
Dividend payout ratio shows the percentage of profit shared with the shareholders. The
more the ratio will increase the goodwill of the bank in the share market.
Dividend/ Net profit
Ø Return on Asset:
Net profit to total asset indicates the efficiency of the banks in utilizing their assets in
generating profits. A higher ratio indicates the better income generating capacity of the
assets and better efficiency of management in future.
Net Profit/ Total Asset
Ø Operating Profit by Average Working Fund:
This ratio indicates how much a bank can earn from its operations net of the operating
expenses for every rupee spent on working funds. Average working funds are the total
resources (total assets or total liabilities) employed by a bank. It is daily average of total
assets/ liabilities during a year. The higher the ratio, the better it is. This ratio determines the
operating profits generated out of working fund employed. The better utilization of the

funds will result in higher operating profits. Thus, this ratio will indicate how a bank has
employed its working funds in generating profits.
Operating Profit/ Average Working Fund
Ø Net Profit to Average Asset:
Net profit to average asset indicates the efficiency of the banks in utilizing their assets in
generating profits. A higher ratio indicates the better income generating capacity of the
assets and better efficiency of management. It is arrived at by dividing the net profit by
average assets, which is the average of total assets in the current year and previous year.
Thus, this ratio measures the return on assets employed. Higher ratio indicates better
earning potential in the future.
Net Profit/ Average Asset
Ø Interest Income to Total Income:
Interest income is a basic source of revenue for banks. The interest income total income
indicates the ability of the bank in generating income from its lending. In other words, this
ratio measures the income from lending operations as a percentage of the total income
generated by the bank in a year. Interest income includes income on advances, interest on
deposits with the RBI, and dividend income.
Interest Income/ Total Income
Ø Other Income to Total Income:
Fee based income account for a major portion of the bank’s other income. The bank
generates higher fee income through innovative products and adapting the technology for
sustained service levels. The higher ratio indicates increasing proportion of fee-based
income. The ratio is also influenced by gains on government securities, which fluctuates
depending on interest rate movement in the economy.
Other Income/ Total Income

3.5) L – Liquidity:
An adequate liquidity position refers to a situation, where institution can obtain sufficient
funds, either by increasing liabilities or by converting its assets quickly at a reasonable cost.
It is, therefore, generally assessed in terms of overall assets and liability management, as
mismatching gives rise to liquidity risk. Efficient fund management refers to a situation
where a spread between rate sensitive assets (RSA) and rate sensitive liabilities (RSL) is
maintained. The most commonly used tool to evaluate interest rate exposure is the Gap
between RSA and RSL, while liquidity is gauged by liquid to total asset ratio.
Initially solvent financial institutions may be driven toward closure by poor management of
short-term liquidity. Indicators should cover funding sources and capture large maturity
mismatches. The term liquidity is used in various ways, all relating to availability of, access
to, or convertibility into cash. An institution is said to have liquidity if it can easily meet its
needs for cash either because it has cash on hand or can otherwise raise or borrow cash. A
market is said to be liquid if the instruments it trades can easily be bought or sold in
quantity with little impact on market prices. An asset is said to be liquid if the market for
that asset is liquid.
The common theme in all three contexts is cash. A corporation is liquid if it has ready
access to cash. A market is liquid if participants can easily convert positions into cash— or
conversely. An asset is liquid if it can easily be converted to cash.
The liquidity of an institution depends on:
Ø The institution's short-term need for cash;

Ø Cash on hand;
Ø Available lines of credit;
Ø The liquidity of the institution's assets;
Ø The institution's reputation in the marketplace—how willing will counterparty is to
transact trades with or lend to the institution?
The ratios suggested to measure liquidity under CAMELS Model are as follows:

Ø Liquidity Asset to Total Asset:
Liquidity for a bank means the ability to meet its financial obligations as they come
due. Bank lending finances investments in relatively illiquid assets, but it fund its loans
with mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its
own liquidity under all reasonable conditions. Liquid assets include cash in hand, balance
with the RBI, balance with other banks (both in India and abroad), and money at call and
short notice. Total asset include the revaluations of all the assets. The proportion of liquid
asset to total asset indicates the overall liquidity position of the bank.
Liquidity Asset/ Total Asset
Ø Government Securities to Total Asset:
Government Securities are the most liquid and safe investments. This ratio measures the
government securities as a proportion of total assets. Banks invest in government securities
primarily to meet their SLR requirements, which are around 25% of net demand and time
liabilities. This ratio measures the risk involved in the assets hand by a bank.
Government Securities/ Total Asset
Ø Approved Securities to Total Asset:
Approved securities include securities other than government securities. This ratio measures
the Approved Securities as a proportion of Total Assets. Banks invest in approved securities
primarily after meeting their SLR requirements, which are around 25% of net demand and
time liabilities. This ratio measures the risk involved in the assets hand by a bank.
Approved Securities/ Total Asset
Ø Liquidity Asset to Demand Deposit:
This ratio measures the ability of a bank to meet the demand from deposits in a particular
year. Demand deposits offer high liquidity to the depositor and hence banks have to invest
these assets in a highly liquid form.
Liquidity Asset/ demand Deposit

Ø Liquidity Asset to Total Deposit:
This ratio measures the liquidity available to the deposits of a bank. Total deposits include
demand deposits, savings deposits, term deposits and deposits of other financial institutions.
Liquid assets include cash in hand, balance with the RBI, balance with other banks (both in
India and abroad), and money at call and short notice.
Liquidity Asset/ Total Deposit
3.6) S – Sensitivity to Market Risk:
It refers to the risk that changes in market conditions could adversely impact earnings
and/or capital. Market Risk encompasses exposures associated with changes in interest
rates, foreign exchange rates, commodity prices, equity prices, etc. While all of these items
are important, the primary risk in most banks is interest rate risk (IRR), which will be the
focus of this module. The diversified nature of bank operations makes them vulnerable to
various kinds of financial risks. Sensitivity analysis reflects institution’s exposure to interest
rate risk, foreign exchange volatility and equity price risks (these risks are summed in
market risk).
Risk sensitivity is mostly evaluated in terms of management’s ability to monitor and control
market risk. Banks are increasingly involved in diversified operations, all of which are
subject to market risk, particularly in the setting of interest rates and the carrying out of
foreign exchange transactions. In countries that allow banks to make trades in stock markets
or commodity exchanges, there is also a need to monitor indicators of equity and
commodity price risk.
Interest Rate Risk Basics:
In the most simplistic terms, interest rate risk is a balancing act. Banks are trying to balance
the quantity of reprising assets with the quantity of repricing liabilities. For example, when
a bank has more liabilities repricing in a rising rate environment than assets repricing, the
net interest margin (NIM) shrinks. Conversely, if your bank is asset sensitive in a rising
interest rate environment, your NIM will improve because you have more assets repricing at
higher rates.

Liquidity risk is financial risk due to uncertain liquidity. An institution might lose liquidity
if its credit rating falls, it experiences sudden unexpected cash outflows, or some other event
causes counterparties to avoid trading with or lending to the institution. A firm is also
exposed to liquidity risk if markets on which it depends are subject to loss of liquidity.
Liquidity risk tends to compound other risks. If a trading organization has a position in an
illiquid asset, its limited ability to liquidate that position at short notice will compound its
market risk. Suppose a firm has offsetting cash flows with two different counterparties on a
given day. If the counterparty that owes it a payment defaults, the firm will have to raise
cash from other sources to make its payment. Should it be unable to do so, it too we default.
Here, liquidity risk is compounding credit risk.
Accordingly, liquidity risk has to be managed in addition to market, credit and other risks.
Because of its tendency to compound other risks, it is difficult or impossible to isolate
liquidity risk. In all but the most simple of circumstances, comprehensive metrics of
liquidity risk don't exist. Certain techniques of asset-liability management can be applied to
assessing liquidity risk. If an organization's cash flows are largely contingent, liquidity risk
may be assessed using some form of scenario analysis. Construct multiple scenarios for
market movements and defaults over a given period of time. Assess day-today cash flows
under each scenario. Because balance sheets differed so significantly from one organization
to the next, there is little standardization in how such analyses are implemented.
Regulators are primarily concerned about systemic implications of liquidity risk. Business
activities entail a variety of risks. For convenience, we distinguish between different
categories of risk: market risk, credit risk, liquidity risk, etc. Although such categorization is
convenient, it is only informal. Usage and definitions vary. Boundaries between categories
are blurred. A loss due to widening credit spreads may reasonably be called a market loss or
a credit loss, so market risk and credit risk overlap. Liquidity risk compounds other risks,
such as market risk and credit risk. It cannot be divorced from the risks it compounds.
An important but somewhat ambiguous distinguish is that between market risk and business
risk. Market risk is exposure to the uncertain market value of a portfolio. Business risk is
exposure to uncertainty in economic value that cannot be mark-to-market. The distinction
between market risk and business risk parallels the distinction between market-value
accounting and book-value accounting. The distinction between market risk and business

risk is ambiguous because there is a vast "gray zone" between the two. There are many
instruments for which markets exist, but the markets are illiquid. Mark-to-market values are
not usually available, but mark-to-model values provide a more-or-less accurate reflection
of fair value. Do these instruments pose business risk or market risk? The decision is
important because firms employ fundamentally different techniques for managing the two
risks.
Business risk is managed with a long-term focus. Techniques include the careful
development of business plans and appropriate management oversight. Book-value
accounting is generally used, so the issue of day-to-day performance is not material. The
focus is on achieving a good return on investment over an extended horizon. Market risk is
managed with a short-term focus. Long-term losses are avoided by avoiding losses from one
day to the next. On a tactical level, traders and portfolio managers employ a variety of risk
metrics —duration and convexity, the Greeks, beta, etc.—to assess their exposures. These
allow them to identify and reduce any exposures they might consider excessive. On a more
strategic level, organizations manage market risk by applying risk limits to traders' or
portfolio managers' activities. Increasingly, value-at-risk is being used to define and monitor
these limits. Some organizations also apply stress testing to their portfolios.

Chapter – 4
LITERATURE REVIEW

4.1) CAMEL rating system (Keeley and Gilbert)
This study uses the capital adequacy component of the CAMEL rating system to assess
whether regulators in the 1980s influenced inadequately capitalized banks to improve their
capital. Using a measure of regulatory pressure that is based on publicly available
information, he found that inadequately capitalized banks responded to regulators' demands
for greater capital. This conclusion is consistent with that reached by Keeley (1988).
Yet, a measure of regulatory pressure based on confidential capital adequacy ratings reveals
that capital regulation at national banks was less effective than at state-chartered banks. This
result strengthens a conclusion reached by Gilbert (1991)
4.2) Banks performance evaluation by CAMEL model (Hirtle and Lopez)
Despite the continuous use of financial ratios analysis on banks performance evaluation by
banks' regulators, opposition to it skill thrive with opponents coming up with new tools
capable of flagging the over-all performance ( efficiency) of a bank. This research paper
was carried out; to find the adequacy of CAMEL in capturing the overall performance of a
bank; to find the relative weights of importance in all the factors in CAMEL; and lastly to
inform on the best ratios to always adopt by banks regulators in evaluating banks'
efficiency.
In addition, the best ratios in each of the factors in CAMEL were identified. For example,
the best ratio for Capital Adequacy was found to be the ratio of total shareholders' fund to
total risk weighted assets. The paper concluded that no one factor in CAMEL suffices to
depict the overall performance of a bank. Among other recommendations, banks' regulators
are called upon to revert to the best identified ratios in CAMEL when evaluating banks
performance.

4.3) CAMEL model examination (Rebel Cole and Jeffery Gunther)
To assess the accuracy of CAMEL ratings in predicting failure, Rebel Cole and Jeffery
Gunther use as a benchmark an off-site monitoring system based on publicly available
accounting data. Their findings suggest that, if a bank has not been examined for more than
two quarters, off-site monitoring systems usually provide a more accurate indication of
survivability than its CAMEL rating. The lower predictive accuracy for CAMEL ratings
"older" than two quarters causes the overall accuracy of CAMEL ratings to fall substantially
below that of off-site monitoring systems.
The higher predictive accuracy of off-site systems derives from both their timeliness-an
updated off-site rating is available for every bank in every quarter-and the accuracy of the
financial data on which they are based. Cole and Gunther conclude that off-site monitoring
systems should continue to play a prominent role in the supervisory process, as a
complement to on-site examinations.
4.4) Check the Risk taken by banks by CAMEL model
The deregulation of the U.S. banking industry has fostered increased competition in banking
markets, which in turn has created incentives for banks to operate more efficiently and take
more risk. They examine the degree to which supervisory CAMEL ratings reflect the level
of risk taken by banks and the risk-taking efficiency of those banks (i.e., whether increased
risk levels generate higher expected returns). Their results suggest that supervisors not only
distinguish between the risk-taking of efficient and inefficient banks, but they also permit
efficient banks more latitude in their investment strategies than inefficient banks.
4.5) Bank soundness - CAMEL ratings – Indonesia (Kenton Zumwalt)
This study uses a unique data set provided by Bank Indonesia to examine the changing
financial soundness of Indonesian banks during this crisis. Bank Indonesia's non-public
CAMEL ratings data allow the use of a continuous bank soundness measure rather than
ordinal measures. In addition, panel data regression procedures that allow for the
identification of the appropriate statistical model are used.

They argue the nature of the risks facing the Indonesian banking community calls for the
addition of a systemic risk component to the Indonesian ranking system. The empirical
results show that during Indonesia's stable economic periods, four of the five traditional
CAMEL components provide insights into the financial soundness of Indonesian banks.
However, during Indonesia's crisis period, the relationships between financial
characteristics and CAMEL ratings deteriorate and only one of the traditional CAMEL
components—earnings—objectively discriminates among the ratings.
4.6) CAMELs and Banks Performance Evaluation (Muhammad Tanko)
Despite the continuous use of financial ratios analysis on banks performance evaluation by
banks' regulators, opposition to it skill thrive with opponents coming up with new tools
capable of flagging the over-all performance ( efficiency) of a bank. This research paper
was carried out; to find the adequacy of CAMEL in capturing the overall performance of a
bank; to find the relative weights of importance in all the factors in CAMEL; and lastly to
inform on the best ratios to always adopt by banks regulators in evaluating banks'
efficiency. The data for the research work is secondary and was collected from the annual
reports of eleven commercial banks in Nigeria over a period of nine years (1997 - 2005).
The purposive sampling technique was used. The findings revealed the inability of each
factor in CAMEL to capture the holistic performance of a bank. Also revealed, was the
relative weight of importance of the factors in CAMEL which resulted to a call for a change
in the acronym of CAMEL to CLEAM. In addition, the best ratios in each of the factors in
CAMEL were identified. The paper concluded that no one factor in CAMEL suffices to
depict the overall performance of a bank. Among other recommendations, banks' regulators
are called upon to revert to the best identified ratios in CAMEL when evaluating banks
performance.
Ø When we were searching for the research paper for literature review, we could not
find a single report or any research paper on the CAMELS model prepared on Indian
Banks. Though it may be prepared by them but we have not found. So we inspired to
make the project report on CAMELS Model specially on Indian Banks.

Chapter – 5
OBJECTIVE & METHODOLOGY

5.1) Objectives of the Study
Ø To understand the financial performance of the banks.

Ø To describe the CAMELS model of ranking, banking institutions, so as to analyze the
comparative of various banks.
Ø To analyze the banks performance through CAMEL model and give suggestion for
improvement if necessary.

5.2) Methodology Adopted
5.2.1) Research Design:
Ø To achieve our objective we have done descriptive research.

Ø We have selected three banks for our study.
Private Sector Bank – AXIS Bank
Public Sector Bank – Bank of India
Co-operative Bank – Gandhidham Co-operative Bank
Ø The period for evaluating performance through CAMELS in this study is five years,
i.e. from financial year 2004-05 to 2008-09. The data is collected from various
sources as follows.
Primary Data:
Primary data collected from the Bank’s Balance Sheets, Profit & Loss statements
and also by taking personal visit to the employees of the banks.
Secondary Data:
Secondary data for the ratio analysis & interpretation was collected from journals,
bank’s prospectus, bank’s annual reports and internet.

Ø To achieve our objective we have calculated following ratios as per CAMEL

framework.
Capital Adequacy
• Capital Risk Adequacy Ratio
• Debt Equity Ratio
• Total Advance to Total Asset
• Government Securities to Total Asset
Asset Quality
• Gross NPA to Total Loan
• Net NPA to Total Loan
Management
• Total Advance to Total Deposits
• Business per Employee
• Profit per Employee
Earnings
• Dividend Payout Ratio
• Return on Asset
• Operating Profit to average Working Fund
• Net Profit to Average Asset
• Interest income to Total Income
• Other Income to Total Income
Liquidity
• Liquid Asset to Total Asset
• Government Security to Total Security
• Approved Security to Total Security
• Liquidity Asset to Demand Deposit
• Liquidity Asset to Total Deposit

5.3) LIMITATIONS OF THE STUDY
Ø The study was limited to three banks only.

Ø Time and resource constrains.
Ø The method discussed pertains only to banks though it can be used for performance
evaluation of other financial institutions.
Ø The study was completely done on the basis of ratios calculated from the balance sheets.
Ø It was not possible to get a personal interview with the top management employees of
all banks under study.

Chapter – 6
DATA INTERPRETATION AND
ANALYSIS

6.1) DATA INTER PRETATION
6.1.1) Capital Adequacy:
Capital Risk Adequacy Ratio:
Capital
CRAR =
Total Risk Weighted Credit Exposure
TABLE - 1
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09
AXIS Bank 12.66% 11.08% 11.57% 13.73% 13.69%
GCB 31.32% 37.75% 37.38% 36.58% 40.56%
Bank of India 11.52% 10.75% 11.71% 12.95% 13.21%
Interpretation:
CRAR is a ratio of Capital Fund to Risk Weighted Assets. Reserve Bank of India prescribes
Banks to maintain a minimum Capital to risk-weighted Assets Ratio (CRAR) of 9 % with
regard to credit risk, market risk and operational risk on an ongoing basis, as against 8 %
prescribed in Basel documents.
45.00% Chart - 1
Capital adequacy ratio of the 40.00%
35.00%
AXIS Bank was well with 13.69%
30.00%
for the year 2008 – 09, above 25.00%
prescribed by RBI. Higher the 20.00%
ratio the banks are in a 15.00%

10.00%
comfortable position to absorb
5.00%
losses. In 2006 capital has been 0.00%
increased approx. 40% to capital 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09
of 2005 and total risk weighted

AXIS Bank GCB Bank Bank of India
asset increased by approximately
60%. So, CRAR for the year decreased. During 4 years (2006 – 2009) capital increased by

approx. 3 times and risk weighted assets increased by approx. 2 times. So ratio of the year
2009 is increased.
The reason of increase the ratio for the AXIS Bank in the last year is, the bank has raised
capital of 1700 crore, by way of subordinated bonds (unsecured redeemable non-convertible
debentures) qualifying as Tier II capital. The raising of this non-equity capital has helped
the Bank continue its growth strategy and has strengthened its capital adequacy ratio.
GCB also maintain the higher ratio against prescribed by RBI. In 2005 this ratio is 31.32%
and it has increased to 40.56% in 2009. The ratio was increased by 4% in the year 2009
because of increment in share capital of Rs. 10 lakhs.
Bank of India has 11.52% CRAR in 2005 and it has increased to 13.21% in 2009. Total
capital of BOI increased by approx. 1.5 times and total weighted asset doubled from 2006 to
2009. So, CRAR increased by approx. 3%.
The reason of increment in CRAR of Bank of India is, the Bank has raised Rs.400 crore by
way of Innovative Perpetual Debt Instrument (IPDI) as Tier I capital and Rs.500 crore by
way of Upper Tier II Bonds to strengthen capital adequacy.

Debt-Equity Ratio:
Borrowings
Debt-Equity Ratio =
Share Capital + Reserves
TABLE - 2
Banks 2004 – 05 2005 – 06 2006 - 07 2007 – 08 2008 – 09
AXIS Bank 73.97% 93.34% 153.12% 64.14% 102.98%
GCB Nil Nil Nil Nil Nil
Bank of India 133.53% 118.26% 112.31% 67.74% 70.30%
Interpretation:
The Debt to Equity Ratio measures how much money a bank should safely be able to
borrow over long periods of time. Generally, any bank that has a debt to equity ratio of over
40% to 50% should be looked at more carefully to make sure there are no liquidity
problems.
In AXIS Bank, this ratio is more than

200.00% Chart - 2
the expected ratio from 2005 to 2009.
150.00%
In 2008 Axis Bank is showing very
less ratio as compared to 2007 because 100.00%
their profit has been increasing by

50.00%
61% and they have paid their
0.00%
liabilities during the year and vice
2004 – 2005 – 2006 - 07 2007 – 2008 –
versa in the year 2009. 05 06 08 09
AXIS Bank Bank of India
In GCB there is no borrowing. So the
ratio shows nil.
In BOI the ratio is 133.53% in the year 2005 and after decreased it reached to 70.30% in the
year 2009. Since the year 2003 to 2008, there is a continuous increment in reserves and
surplus so that the ratio was continuously decrease and in the year 2009 there is increment
in borrowings so that the ratio was slightly increased.

Total Advance to Total Asset Ratio:
Total Advance
Total Advance to Total Asset Ratio =
Total Asset
TABLE - 3
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09
AXIS Bank 41.34% 44.87% 50.34% 54.45% 55.21%
GCB 34.40% 31.82% 41.75% 51.72% 44.80%
Bank of India 58.97% 58.05% 59.97% 63.45% 63.37%
Interpretation:
Total Advance to Total Asset Ratio shows that how much amount the bank holds against its
assets. Here in AXIS Bank, from 2005 to 2009 this ratio is continuously increased because
increase in advances is more than increase in total assets which shows growth in
investment. And that is good
70.00% Chart-3
sign for the bank. During the
60.00%
year, total advances of the Bank
grew by 36.70% in the previous 50.00%
year. Of this, corporate 40.00%
advances (comprising large and 30.00%
mid-corporate) increased by 20.00%

41.98% during the same period, 10.00%
while agricultural lending
0.00%
increased by 49.23%. Retail 2004 – 05 2005 – 06 2006 - 07 2007 – 08 2008 – 09
loans grew 18.10%. AXIS Bank GCB Bank Bank of India

This ratio of GCB has also increased continuously. In the year 2008, the loans & advances
were increased by Rs. 27.20 crore so the ratio was increased to 51%. The same way because
of decreasing advances during the year 2008-09 the ratio was decreased. In 2005 this ratio
was 34.40% and it has increased to 44.80% in 2009. So this is good sign for GCB.
Bank of India’s Total Advances to Total Asset Ratio is continuously increasing from
58.97% to 63.37%, which shows the sound condition of the bank. As the bank is growing
the advances and the assets are increased in same proportion. Because of that the ratio keeps
in same rate.

Government Securities to Total Investments:
Government Securities
G-sec to Total Investment =
Total Investment
TABLE - 4
Banks 2004 – 05 2005 – 06 2006 - 07 2007 – 08 2008 – 09
AXIS Bank 52.81% 54.77% 61.09% 59.87% 59.85%
GCB 94.58% 96.51% 97.33% 93.64% 76.46%
Bank of India 67.90% 69.00% 71.26% 79.02% 80.85%
Interpretation:
This ratio shows the 120.00% Chart - 4

percent of investment in
100.00%
government securities. It
80.00%
is believed that the more
investment in 60.00%
government security is 40.00%

safer. 20.00%
As per norms stipulated 0.00%

2004 – 05 2005 – 06 2006 - 07 2007 – 08 2008 – 09
by the RBI, the banks
have to maintain
SLR at the rate of 25%.
In AXIS Bank government security Investment increased by approx 250% and total
investment increased by approx 200% during 5 years of 2005 to 2009. Particularly in the
year 2009 the Bank's total investments increased by 37.46% with investments in
government and approved securities, held to meet the Bank's SLR requirement, increasing
by 37.41% as a result of the increase in total deposits.

In GCB the ratio was averagely 95% but in the last year it was decreased to 76.46% in the
year 2009. The ratio was decreased in the year 2009 because of decrease in investment in
government securities by 11 crore. Moreover as against statutory requirement to invest 15%
out of 25% of SLR in central government securities the bank has invested 100% of SLR
requirement in Govt. of India Securities. So, GCB has adequate liquidity as per RBI norms,
but it reduces their profitability.
In Bank of India the ratio increased from approx 67% to 80%. Because of more increment
in Government securities to the increment in total asset the ratio is increased. The more
investment in government securities shows the good sign of the bank.

6.1.2) Asset Quality
Gross NPA ratio:

Gross NPA
Gross NPA=
Total Loan
TABLE - 5
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 1.99% 1.68% 1.14% 0.83% 1.10%
GCB 8.98% 7.02% 10.08% 8.33% 8.35%
Bank of India 6.49% 4.35% 2.83% 1.99% 1.98%
Interpretation:
This ratio is used to 12.00% Chart - 5

check whether the 10.00%
bank's gross NPAs are 8.00%

increasing quarter on
6.00%
quarter or year on year.
4.00%
If it is, indicating that
2.00%
the bank is adding a
fresh stock of bad loans. 0.00%
2004 – 05 2005 – 06 2006 - 07 2007 – 08 2008 - 09
It would mean the bank
is either not exercising
enough caution when
offering loans or is too lax in terms of following up with borrowers on timely repayments.
In 2005, AXIS Bank’s gross NPA is 1.99% and it has decreased to 1.10% till 2009. It
means this ratio in AXIS Bank is decreased year by year from 2005 to 2009 because AXIS
Bank takes enough care of money. But than, we can say that a bank's business is making
loans and world over, some percentage of the loans always turn bad.

In GCB in the year 2006-07 the Gross NPA was increased by approx 47% against the
increment in total loans was approximately 19%. So, the ratio was increased. But in the last
two years as the Gross NPA and loans were increased in the same proportion the ratio has
maintained the average of 8%.
In Bank of India the ratio is decreased from approx 6.49% to 1.98% which shows the BOI
takes care of their money. That’s why their Gross NPA decreases year by year. During the
year 2009, some impaired assets of Rs.118 crore were sold on bid and Portfolio basis to
ARCIL/ASEREC/IFCI/Pegasus ARC Pvt. Ltd. for Rs 89 crore on Cash cum Security
Receipt terms. This has helped in reducing Gross NPA and also unlocking funds in old NPA
accounts, where there was no scope of immediate realization. Amount received in written-
off accounts helped in improving the profit.

Net NPA Ratio:

Net NPA
Net NPA =
Total Loan
TABLE - 6
Banks 2004 – 05 2005 – 06 2006 - 07 2007 – 08 2008 - 09
AXIS Bank 1.39% 0.98% 0.72% 0.42% 0.40%
GCB 3.22% 0.65% 4.10% 3.45% 0%
Bank of India 3.19% 1.70% 0.85% 0.61% 0.50%
Interpretation:
Net NPAs reflects the performance 4.50% Chart - 6

of banks. A high level of NPAs 4.00%
suggests high probability of a large 3.50%

3.00%
number of credit defaults that affect
2.50%
the profitability and net-worth of 2.00%
banks and also wear down the value 1.50%
of the asset. 1.00%
0.50%
Loans and advances usually represent 0.00%
2004 – 05 2005 – 06 2006 - 07 2007 – 08 2008 - 09
the largest asset of most of the banks.
It monitors the quality of the bank’s AXIS Bank GCB Bank Bank of India
loan portfolio. The higher the ratio,

the higher the credits risk.
Above ratios show the fluctuation of NPA of AXIS Bank during the last 5 years. The bank
has lowest net NPA is 0.40% in 2008-09. Net NPA is continuously decreased from 2005 to
2009. So it is good for the bank to decrease in NPA. Because of decrease in NPA the risk of
bad loans are also decreased.

GCB has been successful to make their NPA at minimum level and there is Zero Net NPA
level at the end of the year. Because they started new schemes for granting of credit
facilities to all sections of society at large.
In Bank of India the NPA ratio is decreased from 3.19% to 0.50%, which shows that they
have been successful in recovering their bad loans. In the last year the ratio was decreased
by 0.11% because of increment in the provisions.

6.1.3) Management Quality
Total Advance to Total Deposit Ratio:

Total Advance
Total Advance to Total Deposit =
Total Deposit
TABLE - 7
Banks 2004 – 05 2005 – 06 2006 - 07 2007 – 08 2008 - 09
AXIS Bank 49.20% 55.62% 62.73% 68.08% 69.48%
GCB 39.07% 44.14% 53.87% 67.21% 57.94%
Bank of India 70.45% 69.38% 71.00% 75.64% 75.33%
Interpretation:
This ratio shows the

80.00% Chart - 7
investment of the bank
70.00%
through approving the loans 60.00%
against accepting the loan. 50.00%
40.00%
In AXIS Bank, the ratio is
30.00%
continuously increasing year 20.00%
by year from 49.20% to 10.00%
69.48% in year 2005 to 2009. 0.00%
This shows good sign of the 2004 – 05 2005 – 06 2006 - 07 2007 – 08 2008 - 09
bank, if it will be increased AXIS Bank GCB Bank Bank of India
more, than it may be risky for

the bank. In the year 2009, the ratio is increased a little because of 37% increment in
Advances and 34% increment in Deposits.
Same in GCB, this ratio is continuously increased from 39.07% to 57.94% in year 2005 to
2009. In the year 2009, the ratio decreased because of increment in Deposits by 10.5 crore.

In Bank of India the ratio is continuously increased from 70.45% in 2005 to 75.64% in 2008
and decreased a little to 75.33% in the year 2009. In the year 2009 the ratio is decreased
because of approximately 32% increment in Deposits and against that there was not any
notable deference in advances.

Business per Employee:

Total Income
Business per Employee =
No. of Employees
TABLE - 8 (Amount in Rs. Crore)
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09
AXIS Bank 8.95 10.20 10.24 11.17 10.60
GCB 3.12 2.97 3.31 3.57 3.47
Bank of India 3.20 3.81 4.98 6.52 8.33
Interpretation:
Revenue per employee is 12 Chart - 8

a measure of how
10
efficiently a particular
bank is utilizing its 8
employees. Ideally, a 6
bank wants the highest
4
business per employee
possible, as it denotes 2
higher productivity. In 0
general, rising revenue per 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09
employee is a positive
sign that suggests the
bank is finding ways to squeeze more sales/revenues out of each of its employee.
In AXIS Bank, this ratio increases continuously year by year from 8.95 crore in the year
2005 to 11.17 crore in year 2008 and in the year 2009, it decreased to 10.60 crore. Because
of less recruitment in the year 2008 the ratio is increased to 11.17 crore otherwise the ratio
was maintained averagely 10.5 crore during the 5 years.

In GCB the ratio was maintained average 3 crore to 3.5 crore during the last 5 years.
In Bank of India also this ratio increases continuously from 3.2 crore in the year 2005 to
8.33 crore in the year 2009 which is good. The main reason for this increment is the
increase in profit by approximately 49%.

Profit per Employee:

Net Profit
Profit per Employee =
No. of Employees
TABLE – 9 (Amount in Rs. Lac)
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 7.03 8.69 7.59 8.39 10.02
GCB 3.98 4.30 2.82 4.13 4.40
Bank of India 0.80 1.66 2.71 4.95 7.49
Interpretation:
Profit per employee is a

12 Chart - 9
measure of how efficiently a
10
particular bank is utilizing its
8
employees. Ideally, a bank
6
wants the highest profit per
employee. 4
2
In AXIS Bank, the profit per
0
employee was 7.03 lakhs in 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
2005 and it has increased to AXIS Bank GCB Bank Bank of India
10.02 lakhs in 2009 which

shows that profit per employee is increased from 2005 to 2009.
In GCB the ratio is increased a little from 3.98 lakh in 2005 to 7.49 lakh in 2009. The ratio
was increased in the year 2009 because of increment in Net profit by approximately 10.5%.
This shows the efficiency of work staff of GCB.
In BOI profit per employee is increased from 0.8 lakh in 2005 to 7.49 lakh in 2009 which is
because of more increase in profit than the increment in number of employee.

6.1.4) Earnings Quality:
Dividend Payout Ratio:

Dividend
Dividend Payout Ratio=
Net Profit
TABLE - 10
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09
AXIS Bank 26.23% 23.20% 22.58% 23.50% 23.16%
GCB 27.83% 26.49% 46.08% 33.20% 31.37%
Bank of India 16.34% 23.77% 7.62% 12.23% 10.22%
Interpretation:
Dividend payout ratio shows the 50.00% Chart - 10

45.00%
percentage of profit shared with
40.00%
the shareholders. The more the 35.00%
30.00%
ratio will increase the goodwill of 25.00%
the bank in the share market. 20.00%
15.00%
10.00%
In AXIS Bank, the average ratio 5.00%
0.00%
during the five years is approx
2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
24%. They have paid highest
dividend in the year 2005. Then,
the average was maintained by approximately by 25%.
In GCB, though the profit was increased by 23 lakhs, but the share capital was also
increased by 10 lakhs, so the ratio was slightly decreased in the year 2009.
In BOI also the ratio is much fluctuated. In 2006, it was highest at 23.77% and minimum in
the year 2007 which was 7.62% only. At last it was 10.22% in the year 2009.

Return on Asset:
Net Profit
Return on Asset =
Total Asset
TABLE - 11
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 0.90% 0.98% 0.90% 0.98% 1.23%
GCB 1.45% 1.63% 1.01% 1.41% 1.44%
Bank of India 0.35% 0.62% 0.79% 1.12% 1.33%
Interpretation:
1.80% Chart - 11
Return on Asset Ratio shows that how 1.60%
1.40%
much return bank can get from their 1.20%
total asset. Higher the ratio is good for 1.00%
0.80%
the bank. Because if ratio is higher than 0.60%
0.40%
we can say that the return of bank is 0.20%
high. 0.00%
2004 – 2005 – 2006 – 2007 – 2008 - 09
05 06 07 08
In AXIS Bank, we can see that in 2005 AXIS Bank GCB Bank Bank of India
this ratio is 0.90% and it has increased in
2009 to 1.23%. The main reason for this major change in the ratio is 69% increment in Net
profit and 39% change in Assets. YoY both of them are increasing in same proportion but in
last year per cent increment in profit was more than the increment in assets.
In GCB, in the year 2007-08 because of increment in profit by approx 48% but there was no
major change in the assets so the ratio was increased by 0.40%. And it was maintained in
the year 2009.
This ratio in BOI increased year by year. In 2005 this ratio is 0.35% and it has increased in
2009 to 1.33%. The ratio was increased in the last year because of 49% increment in net
profit against the increase in assets were 34%. It means this is good for BOI to increase the
profit from their asset.

Operating Profit by Average Working Fund:

Operating Profit
Operating Profit to Avg. Working Fund=

TABLE - 12
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 2.04% 2.43% 2.10% 2.57% 2.95%
GCB * * * * *
Bank of India 1.62% 1.64% 1.88% 2.31% 2.70%
* Data not available
Interpretation:
Earning reflect the growth 3.50% Chart - 12

capacity and the financial 3.00%
health of the bank. High 2.50%
earnings signify high growth 2.00%
prospects. 1.50%
1.00%
In AXIS Bank, it has
0.50%
increased from 2.04% to
0.00%
2.95% during the year 2005
2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
to 2009 which is good for the
AXIS Bank Bank of India
bank. In the last year 2009
the operating profit was increased by 67%.
In BOI, it was increased from 1.62% in the year 2005 to 2.70% in the year 2009 which is
good for the bank. Because of 47% increment in the net profit the ratio was increased in the
year 2009.

Net Profit to Average Asset:

Net Profit
Net Profit to average Asset=
Average Asset
TABLE - 13
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 1.21% 1.18% 1.10% 1.24% 1.44%
GCB 1.46% 1.58% 1.00% 1.45% 0.75%
Bank of India 0.38% 0.68% 0.88% 1.25% 1.49%
Interpretation:
Net profit to average asset indicates the 1.80% Chart - 13

1.60%
efficiency of the banks in utilizing their
1.40%
assets in generating profits. A higher 1.20%
1.00%
ratio indicates the better income
0.80%
generating capacity of the assets and 0.60%
0.40%
better efficiency of management.
0.20%
0.00%
In AXIS Bank the ratio is continuously 2004 – 052005 – 062006 – 072007 – 08 2008 - 09
increase year by year from 1.21% in AXIS Bank GCB Bank Bank of India
2005 to 1.44% in the year 2009. This is

a good time for Bank to be 'giving back', for it has just completed a very successful year. Its
Net Profit rose 69.50% to Rs. 1,815.36 crore, its assets grew 35%, and productivity and
efficiency levels (whether measured by Return on Assets or Return on Equity or Profit per
Employee) have risen well over the year. Most of all, the Bank finds itself competitively
positioned in several of its key businesses, and this should predict well for the year ahead.
In BOI the ratio was 0.38% in the year 2005 and increased to 1.49% in the year 2009which
is good for the bank. In the year 2009 there was 49% increment in net profit, against that
increment in average asset was approximately 37%. Because of that the ratio was increased
by 0.24% in the year 2009.

Interest Income to Total Income:

Interest Income
Interest Income to Total Income =
Total Income
TABLE - 14
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 63.75% 59.64% 59.24% 59.02% 56.00%
GCB 96.24% 93.92% 96.22% 95.96% 97.09%
Bank of India 83.92% 85.58% 85.05% 85.29% 84.29%
Interpretation:
Interest income to total income 120.00% Chart - 14

ratio shows that how much 100.00%
interest income earn from total
80.00%
income. This ratio was
60.00%
continuously decreased from
40.00%
2005 to 2009 in AXIS Bank.
20.00%
This shows bad effect in profit
0.00%
from interest in AXIS Bank,
2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
because interest income is a
regular income from customer.
The growth of NII may be attributed to an expansion in the balance sheet size, with average
earning assets in the year increasing by 48.37% (Rs. 74,589 crore in 2007-08 to Rs.
1,10,664 crore in 2008-09). Although this gain in NII was partly offset by the hardening of
interest rates, particularly in the second half of the financial year, the growth of demand
deposits (which on a daily average basis increased by 33.81% to Rs. 34,141 crore from Rs.
25,515 crore in the previous year) helped the Bank contain the cost of funds.

GCB was maintained on an average same percentage from 2005 to 2008. In 2009 it was
increased to 97.09%. So, here we can say that GCB was making most of profit from interest
income. So this is good sign for the GCB.
In the income statement of BOI most income is from the interest income. Averagely 85% of
the income of BOI is from Interest income, which is from the main business of the bank
which is good sign for a bank. In the year 2009 Net interest income grew by 30.02% on the
backdrop of rise in volume of business mix by 26.30% (from Rs. 2,64,804 crore to Rs.
334,440 crore).

Other Income to Total Income:

Other than Interest Income
Other Income to Total Income =
Total Income
TABLE - 15
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 36.25% 40.36% 40.76% 40.98% 44.00%
GCB 3.76% 6.08% 3.78% 4.04% 2.91%
Bank of India 16.08% 14.42% 14.95% 14.71% 15.78%
Interpretation:
Fee based income account for a 50.00% Chart - 15

major portion of the bank’s other 45.00%
40.00%
income. The bank generates higher 35.00%
fee income through innovative 30.00%
25.00%
products and adapting the 20.00%
technology for sustained service 15.00%
10.00%
levels. The higher ratio indicates 5.00%
increasing proportion of fee-based 0.00%
2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
income. The ratio is also influenced
by gains on government securities,
which fluctuates depending on interest rate movement in the economy.
This ratio in AXIS Bank increased from 36.25% to 44.00% in 2005 to 2009 which shows
that AXIS Bank earning from government security and through providing innovative
products. In the year other income increased by 63% because of that the ratio was increased
by 4% in the year 2009 and the main increment was in the fee income.
In GCB’s income statement, a very small part of income is from income from other than
interest income because as we have discussed before that bank invests most of its fund in
Government securities.

The BOI has averagely 15% part of income is from other way of income which is good for
the bank. In the year 2005-06 the ratio was decreased because of proportionately more
increment in total income than other than interest income vice-versa in the year 2009.

6.1.5) Liquidity:
Liquidity Asset to Total Asset:

Liquidity Asset to Total Asset =

TABLE - 16
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 11.93% 7.32% 9.45% 11.41% 10.17%
GCB 11.17% 9.70% 7.67% 5.29% 15.47%
Bank of India 7.92% 10.90% 12.27% 9.90% 9.65%
Interpretation:
Liquidity for a bank means the ability

to meet its financial obligations as 50.00% Chart - 16
they come due. Bank lending 40.00%
finances investments in relatively 30.00%
illiquid assets, but it fund its loans 20.00%

with mostly short term 10.00%
liabilities. Thus one of the main
0.00%
challenges to a bank is ensuring its 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
own liquidity under all reasonable
conditions.
In AXIS Bank this ratio is continuously decreased from 2005 to 2009. In 2005 this ratio is
11.93% and it has decreased to 10.17%. The ratio was decreased in the year 2009 because
of increment in total assets by approx 35 crore.
In GCB this ratio is continuously decreased from 2005 to 2008 but in 2009 it has increased.
In 2005 this ratio is 11.17% and it has decreased in 2008 to 5.29% and in 2009 it has

increased to 15.47%. The reason for this much increment is increment in liquidity asset of
Rs. 18 crore.
This ratio in Bank of India was continuously increased. In 2005 this ratio is 7.92% and it
has increased to 9.65% in the year 2009.

Government Securities to Total Asset:

Government Securities
G-sec to Total Asset =
Total Asset
TABLE - 17
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 19.97% 23.71% 22.43% 18.42% 18.77%
GCB 46.40% 51.18% 45.64% 37.09% 27.13%
Bank of India 20.16% 19.53% 17.84% 18.47% 18.86%
Interpretation:
Government securities to total

60.00% Chart - 17
asset ratio shows that, what
50.00%
percentage of government
40.00%
securities bank has against total
30.00%
assets. Higher the ratio is good
20.00%
for the bank because if this ratio
is higher than we can say that 10.00%
bank is more investing in 0.00%

2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
government securities.
In AXIS Bank, the ratio is

increase from 19.97% in 2005 to 23.71% in 2006 and it decreased to 18.77% in 2009. In the
year 2005, the ratio was highest because the bank has increased investment in only
government securities but in the last year bank has increased the total investment in govt.
securities as well as debentures & bonds also.
In GCB, the ratio was fluctuating during the five years. At last in the year 2009 the ratio
was 27.13%. In the year 2009, the G-sec investment was decreased by 11 crore and the total
assets were increased by approximately 13 crore. So, the ratio was decreased. Bank has

withdrawal their fund from invested in other banks and they have invested into government
securities during the previous year.
IN BOI this ratio, is continuously decreased from 2005 to 2009. In 2005, this ratio was
20.16 and it has decreased to 18.86%. In the year 2007, because of less increment in the
government securities to the increment of total investment the ratio was decreased. Vice
versa in the year 2009 the ratio was increased.

Approved Securities to Total Asset:

Approved Securities
Approved Securities to Total Asset =
Total Asset
TABLE - 18
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 0 0 0 0 0
GCB 1.01% 1.41% 0.97% 0.82% 0.62%
Bank of India 0.87% 0.72% 0.56% 0.41% 0.29%
Interpretation:
Approved securities include

1.60% Chart - 18
securities other than government 1.40%
securities. This ratio measures the 1.20%
Approved Securities as a 1.00%
proportion of Total Assets. Banks 0.80%
invest in approved securities 0.60%

0.40%
primarily after meeting their SLR
0.20%
requirements, which are around
0.00%
25% of net demand and time 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
liabilities. This ratio measures the
GCB Bank Bank of India
risk involved in the assets hand by
a bank.
In AXIS Bank the ratio is 0 because they are not having any investment in approved
securities.
In GCB the ratio was highest in the year 2006 by 1.41% and at last it was 0.62% in the year
2009 which was lowest during the last five years. In the year 2009 there was minor change
in investment in government securities but the ratio was decreased because of increment in
total asset by 11 crore.

In BOI the ratio was continuously decreased from 0.87% in the year 2005 to 0.29% in the
year 2009. The ratio is continuously decreased because of decrement in Approved
securities. In the last year 2009 the ratio was decreased because of decrement in approved
securities by approx 13%.

Liquidity Asset to Demand Deposit:

Liquidity Asset
Liquidity Asset to Demand Deposit =
Demand Deposit
TABLE - 19
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
AXIS Bank 37.38% 22.71% 29.53% 31.24% 29.70%
GCB 36.33% 41.68% 49.90% 19.72% 61.16%
Bank of India 27.63% 34.80% 45.07% 38.54% 42.80%
Interpretation:
The ratio shows the power of 70.00% Chart - 19

liquidity asset against total demand 60.00%
deposits. It means what part of the 50.00%
demand deposits can be easily 40.00%
converted into monetary form in 30.00%
need. 20.00%
10.00%
In AXIS Bank, this ratio was
0.00%
continuously decreased from 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
37.38% in 2005 to 29.53% in 2007, AXIS Bank GCB Bank Bank of India
than increased to 31.24% in 2008
and again decreased in 2009 to 29.70%. The ratio was decreased in the year 2009 because
of increment in the assets was 18% which was less than the increment in the demand
deposits which was 27%.
In GCB the ratio was fluctuate because of the change in the cash balance during the each
year ending. In the year 2009 because of increment in cash balance by approx 14 crore the
liquidity assets were increased and vice versa the ratio was also increased.

In BOI the ratio was 27.63% in 2005 and at last in 2009 it was 42.80%. The ratio was
increased in the last year because of increment in assets by 20%. There was not any large
difference in demand deposits than the previous year.

Liquidity Asset to Total Deposit:

Liquidity Asset
Liquidity Asset to Total Deposit =
Total Deposit
TABLE - 20
Banks 2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 – 09
AXIS Bank 14.20% 9.08% 11.77% 14.27% 12.79%
GCB 8.67% 12.45% 15.67% 6.88% 20.01%
Bank of India 9.55% 12.19% 14.52% 11.81% 11.47%
Interpretation:
The ratio shows how much part of

the deposits invested into the 25.00% Chart - 20
liquidity asset, which can be easily 20.00%
convert in to monetary value in the
15.00%
time of need.
10.00%
In AXIS Bank, the ratio was
5.00%
14.20% in 2005 and after
0.00%
fluctuation it was 12.79% in 2009.
2004 – 05 2005 – 06 2006 – 07 2007 – 08 2008 - 09
In the year 2009, the deposits were
increased by 33.95% and the assets
were increased by 18 %. So the ratio for the year 2009 was decreased.
In GCB, the ratio was 8.67% in 2005 and after fluctuation it was 20.01% in 2009. The ratio
was increased because of increment in the liquidity assets and the main increment was in
cash balance and it was increased from 7.28 crore to 22.16 crore.
In BOI, the ratio was 9.55% in 2005 and after fluctuation it was 11.47% in 2009. The ratio
was decreased a little because of 22% increment in deposits and approx 20% increment in
assets in the year 2009.

6.2) ANALYSIS
COMPONENT RATINGS TO THE BANKS

Now, after analyzing the ratio next, task to do is to give weightage to all the parameters
according to the importance of the ratios. Each component will be given weightage
according to the importance of itself and ratios covered in that particular point. The total
weightage allocated to the all parameters would be out of 100. The weightage given to
different parameters is as follows:
TABLE - 21 – Component Weightage
Parameter Weightage
Capital Adequacy 28%
Asset Quality 14%
Management 15%
Earnings 18%
Liquidity 25%
Total 100%

Ratio Wise Weightage:
After giving the importance to the each parameter, now its turn to give the weightege
according to the importance of the ratio we will allocate the weightage to the each particular
ratio. The weightage given to the each ratio is as follows:
TABLE - 22
RATIO WEIGHTAGE
Capital Adequacy Out of 28%

Capital Risk Adequacy Ratio 7%
Debt Equity Ratio 7%
Total Advance to Total Asset Ratio 7%
Government Securities to Total Asset 7%
Asset Quality Out of 14%
Gross NPA to Total Loan 7%
Net NPA to Total Loan 7%
Management Out of 15%
Total Advance to Total Deposits 5%
Business per Employee 5%
Profit per Employee 5%
Earnings Out of 18%
Dividend Payout Ratio 3%
Return on Asset 3%
Operating Profit to Average Working Fund 3%
Net Profit to Average Asset 3%
Interest Income to Total Income 3%
Other Income to Total Income 3%
Liquidity Out of 25%
Liquid Asset to Total Asset 5%
Government Security to Total Security 5%
Approved Security to Total Security 5%
Liquidity Asset to Demand Deposit 5%
Liquidity Asset to Total Deposit 5%
Total 100%

After allocating the weightage, we have made frequency classes according to the results
found from the ratios for each ratio of each parameter. He frequency classes for each ratio
are as follows:
Capital Adequacy:
TABLE - 23
Marks
Ratios
1 2 3 4 5 6 7
Below 15.50- 20.00- 24.50- 29.00- 33.50 – Above
CRAR
15.50 20.00 24.50 29.00 33.50 38.00 38
Above 115- 105- Below
Debt-Equity Ratio 95-105 85-95 75-85
125 125 115 75
Total Advance to Above
Below 35 35-40 40-45 45-50 50-55 55-60
Total Asset 60
G-sec to Total Above
Below 58 58-65 65-72 72-79 79-86 86-93
Investment 93
Asset Quality:
TABLE - 24
Marks
Ratios
1 2 3 4 5 6 7
Gross NPA to Total Above 7.50 – 6- 4.50- 3.00- 1.50- Below
Loan 9 9.00 7.50 6.00 4.50 3.00 1.5
Net NPA to Total Above 2.50 – 2 – 1.50 – 1.00 – 0.50 – Below
Loan 3 3.00 2.50 2.00 1.50 1.00 0.5
Management Quality:
TABLE - 25
Marks
Ratios
1 2 3 4 5
Below Above
Total Advance to Total Deposit 46-55 55-64 64-73
46 73
Below 2.50 – 5.00 – 7.50 – Above
Business per Employee
2.50 5.00 7.50 10 10
Below 2.00 – 4.50 – 7.00 – Above
profit per Employee
2.00 4.50 7.00 9.50 9.50

Earnings Quality:
TABLE - 26
Marks
Ratios
0.5 1.0 1.5 2.0 2.5 3.0
Below Above
Dividend payout Ratio 10-17 17-24 24-31 31-38
10 38
Below 0.50 – 0.75 – 1.00 – 1.25 – Above
Return on Asset
0.5 0.75 1.00 1.25 1.50 1.50
Operating Profit to Below 1.75- 2.00 – 2.25 – 2.50 – Above
Average Working Fund 1.75 2.00 2.25 2.50 2.75 2.75
Net Profit to Average Below 0.50 – 0.75 – 1.00 – 1.25 – Above
Asset 0.5 0.75 1.00 1.25 1.50 1.50
Interest Income to Total Below Above
56 – 67 67 – 76 76 – 85 85 – 94
Income 56 94
Other Income to Total Below 13.50- Above
4-13.50 23-32.5 32.5-42
Income 4 23 42
Liquidity:
TABLE - 27
Marks
Ratios
1 2 3 4 5
Above
Liquidity Asset to Total Asset Below 7 7–9 9 – 11 11 -13
13
24 – Above
G-Sec to Total Asset Below 24 31 – 38 38 – 45
31 45
Below 0.50 – 0.75 – 1.00 – Above
Approved Securities to Total Asset
0.50 0.75 1.00 1.25 1.25
27 – Above
Liquid Asset to Demand Deposit Below 27 35 – 43 43 – 51
35 51
Above
Liquid Asset to Total Deposit Below 9 9 – 12 12 -15 15 – 18
18

After allocating classes for the each ratio and for the five years, now we will give marks to
each bank on the basis of average of their average of performance during the last five years
i.e. 20005 to 2009 to all the banks.
Capital Adequacy:
The table given below shows the marks given to the Capital Adequacy ratios out of 7
marks.
TABLE - 28
Banks
Ratios
AXIS bank GCB Bank of India
CRAR 1 6 1
Debt-Equity Ratio 4 0 4
Total Advance to Total Asset Ratio 6 4 7
G-Sec to Total Investment 1 6 4
TOTAL 12 16 16
Asset Quality:
The table given below shows the marks given to the Asset Quality ratios out of 7 marks.
TABLE - 29
Banks
Ratios
Gross NPA to Total Loan Ratio 7 2 5
Net NPA to Total Loan Ratio 6 3 5
TOTAL 13 5 10

Management Quality:
The table given below shows the marks given to the Management Quality ratios out of 5
marks.
TABLE - 30
Banks
Ratios
Total Advance to Total Deposit 3 2 4
Business per Employee 5 2 3
profit per Employee 4 2 2
TOTAL 12 6 9
Earning Quality:
The table given below shows the marks given to the Earning Quality ratios out of 3 marks.
TABLE - 31
Banks
Ratios
Dividend Payout Ratio 1.5 2.5 1
Return on Asset 1.5 2.5 1.5
Operating profit to Average working Fund 2 - 1.5
Net profit to Average asset 2 2.5 1.5
Interest Income to Total Income 1 3 2
Other Income to Total Income 2.5 1 1.5
TOTAL 10.5 11.5 9

Liquidity:
The table given below shows the marks given to the Liquidity ratios out of 5 marks.
TABLE - 32
Banks
Ratios
Liquidity Asset to Total Asset 3 3 3
G-Sec to Total Asset 1 4 1
Approved Securities to Total Asset 0 3 2
Liquid Asset to Demand Deposit 2 3 3
Liquid Asset to Total Deposit 3 3 2
TOTAL 9 16 11
Overall Ranking to the Banks:
TABLE - 33
Banks
Parameters
Capital Adequacy 12 16 16
Asset Quality 13 5 10
Management Quality 12 6 9
Earning Quality 10.5 11.5 9
Liquidity 9 16 11
TOTAL 56.5 54.5 55
Rank 1 3 2
After going through the whole the process, we found AXIS Bank scored the highest score
so we gave 1st rank to them, and accordingly the 2nd rank was given to Bank of India and 3rd
rank was given to Gandhidham Co-operative Bank. We found that AXIS Bank has
performed better than other two banks during the last five years.

Chapter – 7
CONCLUSION, SUGGESTIONS AND
RECOMMENDATION

7.1) CONCLUSION
The report makes an attempt to examine and compare the performance of the three different
sector banks of India i.e. from private sector bank, AXIS Bank, from Co-operative bank,
Gandhidham Co-operative Bank and from the public sector bank, Bank of India. The
analysis is based on the CAMEL Model. The study has brought many interesting results,
some of which are mentioned as below:
Ø All the three banks have succeeded in maintaining CRAR at a higher level than the
prescribed level, 9%. But the GCB has maintained highest across the duration of last
five years i.e. more than 30%. It is very good sign for the bank to survive and to expand
in future.
Ø Gross NPA ratio has registered declining trend for all the three banks during the last five
years. But Bank of India and Axis Bank have been successful during the last five years
in managing the level of NPA. Whereas the GCB has yet 8.35% of Gross NPA after
declining. But at the end of the year 2008-09 GCB has 0% Net NPA whereas BOI and
AXIS have 0.40% to o.50% Net NPA. Thus, it indicates for improvement in the asset
quality position of all the three banks.
Ø In Management Quality, we have found that Business per Employee Ratio and Profit per
Employee Ratio is increased during the last five years in Axis Bank and Bank of India
but there is not any major change in the GCB. The improvement shows the growth of
the bank as well as efficiency of the employee, which is very good in both the banks and
they will help to the bank to grow in future.
Ø In Earnings Quality, the major part of income of GCB is from Interest income. Because
their large part of investment is in Government Securities. A little change in Interest
Rate will effect on it more. In comparison of that the Axis Bank has average investment
in G-sec. And the same way BOI has a little more than Axis Bank.

Ø The Liquidity ratios indicate better liquidity of all the banks. However, AXIS Bank has
performed throughout well, GCB has an edge over in liquidity if compared with each
other according to these ratios.
From the above analysis we would like to conclude that AXIS bank has high efficiency in
terms of Assets Quality, Management Quality and GCB is good in terms of Capital
Adequacy and Liquidity whereas Bank of India is good in terms of Capital Adequacy.
After evaluating all the ratios, calculations and ratings we have given 1st Rank to AXIS
bank, 2nd Rank to BOI and 3rd Rank to GCB.

7.2) Suggestions and Recommendation
Ø In AXIS bank, debt equity ratio is continuously rising over the years which are not
good so they have to increase equity or reduce debts in their capital structure.
Ø GCB has comparatively less total advance to total asset ratio. So, bank has to give
more advances in order to earn more interest. But they should have to also keep in
mind the credit worthiness of the customers.
Ø GCB has highest Government Security to total investment ratio which leads to
reduce their income and ultimately reduce their profitability so they have to invest in
other than government investment option rather than only in government securities.
Ø GCB has highest Gross NPA ratio which is not good for the bank. They should give
loans to the customers, whose credit worthiness is good. Though their Net NPA ratio
is nil, they have to make more provisions in order to meet their Gross NPA which is
affecting their profitability badly.
Ø In AXIS Bank Interest Income to Total Income Ratio is less. Because they are
giving fewer advances. So, in order to earn more interest income they should invest
more in government approved securities and give more advances to their customers.

BIBLIOGRAPHY
Websites:
www.rbi.org.in
www.allbankingsolutions.com
www.axisbank.com
www.bankofIndia.com
www.economictimes.indiatimes.com
http://www.springerlink.com/content/j0311813x7672564/
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1150968
Books and Journals:
The ICFAI Journal of “Bank Management” Vol. V, No.3, August 2006
“Indian Finance System” by Bharti Pathak
Annual Reports of AXIS Bank
Annual Reports of Gandhidham Co-Operative Bank
Annual Report of Bank of India

ANNEXURE

Final Project Report On CAMELS Model

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Rating The Performance of the Bank through CAMELS Model

“RATING THE PERFORMANCE OF THE BANK

A PROJECT REPORT SUBMITTED BY

RAVI MAJITHIYA (08085)

TOLANI INSTITUTE OF MANAGEMENT STUDIES

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 1

With Sincere Thanks,

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 2

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 3

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 4

After that we have given weightage to each parameter of the CAMELS

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 5

Particulars Page No.

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 6

Particulars Page No.

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 7

TABLE – 32) Liquidity (Marks) 88

Particulars Page No.

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 8

BOI – Bank of India

CAMELS – Capital Adequacy, Asset Quality, Management, Earning, Liquidity, Sensitivity

CRAR – Capital Risk Adequacy Ratio

CRR – Cash Reserve Ratio

GCB – Gandhidham Co-Operative Bank

GIC – General Insurance Corporation

G-Sec – Government Securities

IRB – Internal Rating Based Approach

LIC – Life Insurance Corporation

NII – Net Interest Income

NIM – Net Interest Margin

NPA – Non Performing Asset

RBI – Reserve Bank of India

ROA – Return on Asset

SLR – Statutory Liquidity Ratio

VaR – Value at Risk

YoY – Year on Year

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 9

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 10

1.1) The Bank

1.2) The Origin and Use of Banks

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 11

1.3) THE BANKING REFORMS

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 12

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 13

1.4) BASEL - II ACCORD

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 14

The final version aims at:

1. Ensuring that capital allocation is more risk sensitive;

The Accord in operation

The First Pillar

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 15

Credit Risk Supervisory Mandates increased

PILLAR - I PILLAR - II PILLAR - III

Credit Risk can be calculated by using

2. Foundation IRB (Internal Ratings Based) Approach

3. Advanced IRB Approach

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 16

The Second Pillar

The Third Pillar

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 17

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 18

2.1) AXIS Bank

Smt. Shikha Sharma Managing Director & CEO