18-03-2014, 04:42 PM
Project on Efficiency & Performance of Banks in India (2011-12)
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What is bank?
A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank is the connection between customers that have capital deficits and customers with capital surpluses.
key components of CAMELS ratings
Capital adequacy
Asset quality
Management
Earnings
Liquidity
Sensitivity to market
Capital Adequacy
Capital Adequacy Ratio (CAR): are a measure of the amount of a bank's core capital expressed as a percentage of its risk-weighted asset.
Capital adequacy ratio is defined as:
TIER 1 CAPITAL = (paid up capital + statutory reserves + disclosed free reserves) - (equity investments in subsidiary + intangible assets + current & b/f losses)
TIER 2 CAPITAL = A) Undisclosed Reserves + B) General Loss reserves + C) hybrid debt capital instruments and subordinated debts
CAR = [ ( T1 + T2 ) / a ] >10%
Assets Quality
The asset quality is to ascertain the proportion of non-performing assets as a percentage of the total assets.
It also ascertains the NPA movement and the amount locked up in investments as a percentage of the total assets.
Net NPA to Net Advances
used as a measure of the overall quality of the bank's loan book.
An NPA are those assets for which interest is overdue for more than 90 days (or 3 months).
Higher ratio reflects rising bad quality of loans.
= Net NPA/Net Advances
Management Quality
The management dimension in CAMEL analysis has assumed much important position like never before. To capture the possible dynamics of management efficiency affecting the financial performance of the banks the following ratios are:
Return on net worth
Business per employee
Profit per Employee