CAMELS Model Of

Submitted to Professor Puneet Dublish

By:
Aditya Rao
Ashish Chatrath
Group No. 11
Introduction:
The Industrial Development Bank of India Limited commonly known by
its acronym IDBI is one of India's leading public sector banks and 4th
largest Bank in overall ratings. RBI categorized IDBI as "other public sector
bank”. It was established in 1964 by an Act of Parliament to provide credit
and other facilities for the development of the fledgling Indian industry. It is
currently the tenth largest development bank in the world. Some of the
institutions built by IDBI are The National Stock Exchange of India (NSE),
The National Securities Depository Services Ltd. (NSDL) and the Stock
Holding Corporation of India (SHCIL)

Recent Developments:
To meet emerging challenges and to keep up with reforms in financial
sector, IDBI has taken steps to reshape its role from a development finance
institution to a commercial institution. With the Industrial Development
Bank (Transfer of Undertaking and Repeal) Act, 2003, IDBI attained the
status of a limited company viz. "Industrial Development Bank of India
Limited" (IDBIL). Subsequently, the Central Government notified October
1, 2004 as the 'Appointed Date' and RBI issued the requisite notification on
September 30, 2004 incorporating IDBI Ltd. as a 'scheduled bank' under the
RBI Act, 1934. Consequently, IDBI, the erstwhile Development Financial
Institution of the country, formally entered the portals of banking business as
IDBIL from October 1, 2004, over and above the business currently being
transacted.

As of July, 2006 the employees association of the IFCI have sought its merger with the
IDBI.
CAMELS Model:

Regulators, analysts and investors have to periodically assess the financial

condition of each bank. This is done by the CAMELS Model where in the
Banks are rated on various parameters, based on financial and non-financial
performance.

Bank supervisory authorities assign each bank a score on a scale of one

(best) to five (worst) for each factor. If a bank has an average score less
than two it is considered to be a high-quality institution, while banks with
scores greater than three are considered to be less-than-satisfactory
establishments. The system helps the supervisory authority identify banks
that are in need of attention.

CAMELS is an acronym, where each letter refers to a specific category of

performance.

• C - Capital Adequacy
- Capital adequacy ratio
- Debt-Equity Ratio
- Advances to Assets
- G-Secs to Total Investments

• A - Asset Quality
- Gross NPAs to Net Advances
- Net NPAs to Net Advances
- Total Investments to Total Assets
- Percentage change in Net NPAs
- Net NPAs to Total Assets

• M- Management
- Profit per Branch
- Total Advances to Total Deposits
- Business per Employee
- Profit per Employee
 • E- Earning Quality
- Operating Profits to Average Working Funds
- Percentage Growth in Net Profits
- Spread
- Net Profit to Average Assets
- Interest Income to Total Income
- Non-Interest Income to Total Income

• L- Liquidity
- Liquid Assets to Total Assets
- G-Secs to Total Assets
- Liquid Assets to Demand Deposits
- Liquid Assets to Total Deposits

• S – Sensitivity to market risk

- Measured by Beta

# Here are the Financial Statements of IDBI Bank Ltd. for 4

years ending 31st March 2008.

Balance Sheet

(Rs in Crs)
Year Mar 08 Mar 07 Mar 06 Mar 05
SOURCES OF FUNDS :
Capital 724.76 724.35 723.79 721.78
Reserves Total 8,095.50 7,575.11 5,647.39 5,204.50
Deposits 72,997.98 43,354.04 26,000.92 15,102.64
Borrowings 38,612.56 42,404.38 47,530.20 50,005.54
Other Liabilities & Provisions 10,436.67 9,908.01 8,718.83 10,395.83
TOTAL LIABILITIES 130,867.47 103,965.89 88,621.13 81,430.29
APPLICATION OF FUNDS :
Cash & Balances with RBI 6,694.83 5,406.47 2,680.09 2,375.89
Balances with Banks & money at Call 2,063.94 1,504.62 2,682.69 3,277.27
Investments 32,802.93 25,675.31 25,350.53 25,054.69
Advances 82,212.69 62,470.82 52,739.07 45,413.57
Fixed Assets 2,765.98 2,778.37 810.9 889.42
Other Assets 4,327.10 6,130.30 4,357.85 4,419.45
Miscellaneous Expenditure not written off 0 0 0 0
TOTAL ASSETS 130,867.47 103,965.89 88,621.13 81,430.29
Contingent Liability 101,180.23 108,509.88 76,991.84 60,046.07
Bills for collection 2,831.77 2,405.15 1,519.44 1,207.57
 Profit & Loss Account

(Rs in Crs)
Year Mar 08 Mar 07 Mar 06 Mar 05
INCOME :
Interest Earned 8,020.84 6,345.42 5,380.72 2,655.72
Other Income 1,779.46 1,058.14 1,280.45 673.23
Total 9,800.30 7,403.56 6,661.17 3,328.95
II. Expenditure
Interest expended 7,364.41 5,687.49 5,000.82 2,467.87
Payments to/Provisions for Employees 384.61 282.9 318.51 157.55
Operating Expenses & Administrative Expenses 264.29 199.78 171.99 83.76
Depreciation 83.5 121.99 143.55 84.02
Other Expenses, Provisions & Contingencies 881.03 429.05 437.95 247.27
Provision for Tax 87.5 26 60 -18.78
Deferred Tax 0 22.79 -46.94 0
Total 9,065.34 6,770.00 6,085.88 3,021.69
III. Profit & Loss
Reported Net Profit 729.46 630.31 560.89 307.26
Extraordinary Items 0.72 165.84 5.7 12.77
Adjusted Net Profit 728.74 464.47 555.19 294.49
Prior Year Adjustments 0 0 0 152.53
Profit brought forward 1,314.90 1,030.71 787.45 726.38
IV. Appropriations
Transfer to Statutory Reserve 183 158 140.22 77
Transfer to Other Reserves 1,673.10 61 53.5 260
Trans. to Government /Proposed Dividend 167.22 127.12 123.91 61.72
Balance carried forward to Balance Sheet 21.04 1,314.90 1,030.71 787.45
Equity Dividend % 20 15 15 7.5
Earnings Per Share-Unit Curr 9.76 8.45 7.54 8.3
Book Value-Unit Curr 93.8 86.08 88.03 82.11
 Capital Adequacy
It indicates the bank’s capacity to maintain capital commensurate with
the nature of and extent of all types of risks, as also the ability of the
bank’s management to identify, measure, monitor and control these
risks.

a) Capital Adequacy Ratio:

The Capital is almost stagnant in all the years but the Risk associated with
Assets is increasing, hence the fall in the ratio. It is a worrying sign for the
bank as it might result in future NPAs.

2008 2007 2006 2005

11.95% 13.73% 14.8% 15.51%

b) Debt Equity Ratio:

It depicts the Capital structure of the organization; we see that the firm has
consciously reduced its overall Debt portion in its total funds.

2008 2007 2006 2005

4.37 5.11 7.46 8.43

c) Advances to Assets:

It shows the ratio of Advances in the Total Assets. The ratio is rising
annually which shows that the bank is performing its basic operation of
lending advances very efficiently and improving its business every year,
hence a positive sign.

2008 2007 2006 2005

0.62 0.60 0.59 0.55
d) Govt. Securities to Total Investments:

It shows the ratio of money invested in Govt. securities in totality. Heavy

investment in Govt. Securities denotes Soundness and Safe financial
position of the bank. The figures show an increasing trend and are very
healthy.

2008 2007 2006 2005

0.71 0.63 0.64 0.59

So, overall the Capital Adequacy is satisfactory

despite a falling adequacy ratio as the other ratios
make up for it and reflect a sound position of the
bank.
 Asset Quality
A review or evaluation assessing the credit risk associated with a
particular asset. These assets usually require interest payments - such as
a loans and investment portfolios. How effective management is in
controlling and monitoring credit risk can also have an affect on the
what kind of credit rating is given.
A review or evaluation assessing the credit risk associated with a
particular asset. These assets usually require interest payments - such as
a loans and investment portfolios. How effective management is in
controlling and monitoring credit risk can also have an affect on the
what kind of credit rating is given.
Many factors are considered when rating asset quality. For example,
consideration must be put into whether or not a portfolio is
appropriately diversified, what regulations or rules have been put in to
place to limit credit risks and how efficiently operations are being
utilized. Typically, a rating of one shows that asset quality is good and
there is very little credit risk, while a rating of five can signify that there
are major asset quality problems and issues that need to be managed.

a) Gross NPAs to Net Advances:

2008 2007 2006 2005

1.9% 1.97% 2.11% 2.6%

b) Net NPAs to Net Advances:

2008 2007 2006 2005

1.3% 1.15% 1.01% 1.74%

These above two ratios measure the portion of bank’s assets in the form of
advances that have gone bad, where the recipient has defaulted and not been
paying full or any part of the payment he’s required to pay, or it can be
simply investments gone bad.
The figures are manageable and the first ratio declines all the while showing
that the bank is tightening its screws to keep the NPAs under check.

c) Total Investments to Total Assets:

A higher ratio affects profitability adversely; a lower ratio means the bank
has nothing to guard against in case of future liabilities. This bank shows a
respectable amount of investments to avoid risks and over the years has
slightly lowered its ratio by 6%.

2008 2007 2006 2005

0.25 0.25 0.29 0.31

d) Percentage change in Net NPAs:

The figure is rising in the last two years and so have the assets that guard
against it so there is nothing to worry about. NNPAs declined in 2006 which
shows good loan policy adopted by the bank applying the KYC rule.

2008 2007 2006 2005

28.25% 28.20% -33.50% 3.8%

e) Net NPAs to Total Assets:

This shows the ratio of NNPAs to the Total Assets, the bank can recover
NPAs by selling its assets. The figures are manageable.

2008 2007 2006 2005

0.83% 0.69% 0.63% 1.04%
So, we analyze that the Asset Quality is decent;
there is nothing to worry about for the Investors
although we feel that there is scope for
Improvement. The bank should revise work
harder to ensure that its assets are safe and
healthy.

Management Quality
It signals the ability of the Board of Directors and Senior Managers to
identify, measure, monitor and control risks associated with banking,
this qualitative measure uses risk management policies and processes as
indicators of sound management.

a) Total Advances to Total Assets:

It shows the ratio of Advances in the Total Assets. The ratio is rising
annually which shows that the bank is performing its basic operation of
lending advances very efficiently and improving its business every year,
hence a positive sign.

2008 2007 2006 2005

0.62 0.60 0.59 0.55

b) Business per Employee:

A measure of the total business brought in each employee on an average.

Higher the better. The figures show a mixed trend.
2008 2007 2006 2005
18.09 13.87 17.18 13.5

c) Profit per Employee:

Profit generated by each employee on an average. It shows a mixed trend.

2008 2007 2006 2005

0.09 0.08 0.12 0.07

So, overall we can say that the Management

Quality is Good for this bank as its generating
good business at an increasing rate with
employees being efficient and earning profits
constantly at a steady rate.

Earning Quality
This indicator shows not only the amount of and the trend in earnings,
but also analyzes the robustness of expected earnings growth in future.

a) Operating Profits to Average Working Funds:

2008 2007 2006 2005

0.93 0.84 1.01 1.27
b) Percentage Growth in Net Profits:

It shows the improvement in bank’s overall profitability. The bank stuttered

in 2005 but pulled drastically in 2006 and the profits grew at a nearby
constant rate in the last 2 years.

2008 2007 2006 2005

15.71% 12.30% 82.73% -33.97%

c) Spread:

It shows the cushion it can create out of its basic business of lending
advances and accepting deposits. The bank has done reasonably good
barring a slight fall in the last year.

2008 2007 2006 2005

0.55% 0.68% 0.44% 0.25%

d) Net Profit to Average Assets:

This shows the returns generated by the bank’s total assets. The figures are
healthy and depict good management of funds and good quality of assets.

2008 2007 2006 2005

0.62% 0.65% 0.65% 0.42%

e) Interest Income to Total Funds:

Bank’s basic means of earning is by advancing loans, so how much out of

the total earnings is this amount is reflected by this ratio. Higher the better.
2008 2007 2006 2005
0.57 0.69 0.45 0.52

f) Non-Interest Income to Total Funds:

2008 2007 2006 2005
1.54 1.11 1.51 1.85

Liquidity
It takes into account the adequacy of the bank’s current and potential
sources of liquidity, including the strength of its funds management
practices.

a) Liquid Assets to Total Assets:

This ratio shows the liquid assets in proportion to the total assets.This ratio
shows the banks ability to meet immediate cash requirements of
customers.A high ratio also shows idleness of funds.The banks has
maintained a constant liquid assets to total assets for the last four years.

2008 2007 2006 2005

0.067 0.066 0.061 0.069

b) G-Secs to Total Assets:

This ratio shows the proportion of government securities to total assets.A
high proportion of government securities shows safe investments and the
ability to settle debts during a crisis.The bank has maintained a constant
level of this ratio.

2008 2007 2006 2005

0.18 0.15 0.18 0.18

c) Liquid Assets to Demand Deposits:

This ratio shows the ability to tackle a liquidity crisis. It shows the banks
ability to meet the cash demands of its depositors. We can see a slight
downward trend in this ratio in the past 4 years.

2008 2007 2006 2005

1.21 0.99 1.03 1.45

d) Liquid Assets to Total Deposits:

2008 2007 2006 2005

0.12 0.16 0.21 0.37

Hence, The liquidity ratios of the bank show that

the overall the liquidity of the bank is good due to
a high G-Secs to Total Assets Ratio and Liquid
Assets to Demand Deposits ratio even though the
banks needs to improve on its Liquid Assets to
Total Deposits ratio.
Sensitivity to Market Risk
It’s a recent addition to the ratings parameters and reflects the degree to
which changes in interest rates, exchange rates, commodity prices and equity
prices can affect earnings and hence the bank’s capital.

Beta <1, depicts that changes in the firm are less than the changes in the
market. Less Sensitive
Beta =1, depicts that there is equivalent change in the firm with the changes
in the market Equally Sensitive.
Beta >1, depicts that changes in the firm are more than the changes in the
market. Highly Sensitive.