INDIAN INSTITUTE OF PLANNING AND MANAGEMENT NEW DELHI

FINANCIAL PERFORMANCE OF PUBLIC SECTOR BANKS VERSUS PRIVATE SECTOR BANKS

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ABSTRACT
The banking sector has been undergoing a complex, but comprehensive phase of restructuring since 1991, with a view to make it sound, efficient, and at the same time forging its links firmly with the real sector for promotion of savings, investment and growth. Although a complete turnaround in banking sector performance is not expected till the completion of reforms, signs of improvement are visible in some indicators under the CAMEL framework. Under this bank is required to enhance capital adequacy, strengthen asset quality, improve management, increase earnings and reduce sensitivity to various financial risks. The almost simultaneous nature of these developments makes it difficult to disentangle the positive impact of reform measures. Keeping this in mind, signs of improvements and deteriorations are discussed for the three groups of scheduled banks in the following sections. CAMELS Framework Supervisory framework, consistent with international norms, covers risk-monitoring factors for evaluating the performance of banks. This framework involves the analyses of six groups of indicators reflecting the health of financial institutions. The indicators are as follows: CAPITAL ADEQUACY ASSET QUALITY MANAGEMENT SOUNDNESS EARNINGS & PROFITABILITY LIQUIDITY SENSITIVITY TO MARKET RISK The whole banking scenario has changed in the very recent past on the recommendations of Narasimham Committee. Further BASELL II Norms were introduced to internationally standardize processes and make the banking industry more adaptive to the sensitive market risks. The fact that banks work under the most volatile conditions and the banking industry as such in the booming phase makes it an

interesting subject of study. Amongst these reforms and restructuring the CAMELS Framework has its own contribution to the way modern banking is looked up on now. The attempt here is to see how various ratios have been used and interpreted to reveal a banks performance and how this particular model encompasses a wide range of parameters making it a widely used and accepted model in todays scenario. Performance Analysis of Nationalized Banks in India an Application of Camel Model using different parameters: (A)CAPITAL ADEQUACY: Capital adequacy ratio is defined as

where Risk can either be weighted assets ( ) or the respective national regulator's minimum total capital requirement. If using risk weighted assets,

8%. The percent threshold (8% in this case, a common requirement for regulators conforming to the Basel Accords) is set by the national banking regulator. Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

CAMEL RATING
Financial year 2005 (From Annexure I A & B 2005) In the financial year ending March 2005, based on the total score obtain from five parameters (CAMEL), Vijaya Bank was at the top position in terms of Capital Adequacy, but its Total Advance to Total asset ratio is not good. Andhara Bank was at the top in terms of Asset quality, Corporation Bank was at the top on the basis of Management. Vijaya Bank was at the top in terms of Earnings but Vijaya Banks noninterest income to total asset was very low and syndicate bank was at the top in

terms of liquidity. Syndicate Bank capital adequacy ratio and management seems to be very poor. In 2005, Punjab and Sind Bank was at the bottom position because of its bad overall capital adequacy position but they were good at maintaining a substantial capital in government securities leading to the liquidity. Dena Bank was at bottom in term of its Asset Quality. Punjab and Sind Bank was bottom in terms of its Management, Bank of Baroda is at bottom in terms of its earning and bank of India is at the bottom in terms of its liquidity position. Table:-Outcome of Analysis for the year 2005 Outcome of Analysis for the year 2005 Parameter Capital Adequacy Asset Quality Management Earnings Liquidity Bank at Top Position Corporation Bank Andhra Bank Corporation Bank Vijaya Bank Syndicate Bank at Bottom Position Punjab & Sind Bank Dena Bank Punjab & Sind Bank Dena Bank Bank Bank of India

On the overall banks performance Vijaya Bank was at the top position, Management of Vijaya Bank was the point where they were not good; they were on 6th position from 20 Banks. Corporation Bank was at 2nd position but its govt. securities to total asset ratio was not good which leads to the lower rank in capital adequacy. Its liquidity position was also not good. Andhara Bank was at 3rd position. Punjab national bank was at 4th position but they were lacking in maintaining the liquidity quality ratios, and Indian bank was at 5th position. Table: Overall Performance of the Banks in the Year 2005 Overall Performance of the Banks in the Year 2005 Vijaya Bank Corporation Bank 1 2 Punjab & Sind Bank Bank of India 16 17

Andhra Bank Punjab National Bank Indian Bank

3 4 5

Bank of Baroda Dena Bank Central Bank of India

18 19 20

In 2005, Central Bank of India was at bottom most position following the Dena bank, Bank of Baroda, Bank of India, Punjab and Sind Bank respectively. Bank of India was still good at maintaining the Management ratios. Punjab and Sind bank too had good earnings and liquidity rankings but were lacking in other elements. SBI being the largest public sector bank & SBI had very good in Capital Adequacy, Earnings and Liquidity rankings but its Asset quality was bad in terms of NPA and its Management ranking was also not good in year 2005. Financial year 2006 (From Annexure II A & B 2006) In financial year 2006 Indian overseas Bank was at the top position in the terms of capital Adequacy Ratio, Andhara Bank was at the top most position in the context of Asset quality ratio, in the case of management component Corporation Bank was in the top 5 position, in the case of earning Corporation Bank are in the categories of top 5 in the position, but in the case of liquidity position Andhra Bank are in the position of top 5 ranking. Table: Outcome of Analysis for the year 2006 Outcome of Analysis for the year 2006 Parameter Capital Adequacy Asset Quality Management Earnings Liquidity Bank at Top Position Indian Overseas Bank Andhra Bank Corporation Bank Corporation Bank Syndicate Bank at Bottom Position Bank of India Punjab & Sind Bank Central Bank of India Bank of Maharashtra Bank Bank of India

In 2006, Central Bank of India was at the bottom 5 in the position it is bad in the overall composite ranking but it is god in the government securities in the terms of Capital Adequacy Ratio, central Bank, Dena Bank, Punjab and Sind Bank was at the bottom 5
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position because they have equal composite ranking context in the Asset Quality Ratio, Central Bank was at the 5 bottom in the terms of management, Bank of Maharashtra was at the bottom 5 in the position it is bad in the composite ranking but god in dividend payout ratio and interest income to total income in the terms of earning, central Bank was at the bottom 5 in position in the terms of liquidity. Table: Overall Performance of the Banks in the Year 2006 Overall Performance of the Banks in the Year 2006 Andhra Bank Corporation Bank Indian Overseas Bank Indian Bank Vijaya Bank 1 2 3 4 5 Bank of Maharashtra Bank of India Punjab & Sind Bank Dena Bank Central Bank of India 16 17 18 19 20

In 2006, Punjab & Sind Bank Earning Capacity and the liquidity position of the bank was very good but due to not having the adequate capital, asset quality and poor performance of management thats why they are come under the position of top 5 to bottom 5. In 2006, Syndicate Bank their earning capacity and liquidity position of the bank was good but due to inadequate capital, asset quality and the management are not up to the mark these are the main reason to reduce the performance of the Bank. Financial year 2007(From Annexure III A & B 2007) In the financial year 2007, based on the total score obtain from five parameters (CAMEL), Indian Overseas Bank was at the top position in terms of Capital Adequacy Ratio has high ratio in government securities to total assets i..e,28.46 and lacks in high debt equity ratio which is 17.75 , Andhra Bank was at the top in terms of Asset quality with 1.4 Gross NPAs and 0.17 Net NPAs, Corporation Bank was at the top on the basis of Management with high ratios in business per employee i..e, 637 and profit per employee is 4.79. Table: Outcome of Analysis for the year 2007

Parameter Capital Adequacy Asset Quality Management Earnings Liquidity

Outcome of Analysis for the year 2007 Bank at Top Position Bank at Bottom Position Indian Overseas Bank, O B Central Bank of India C Andhra Bank Corporation Bank Indian Bank Syndicate Bank Central Bank of India, Dena Bank Central Bank of India Central Bank of India Bank of India

Indian Bank was at the top in terms of Earnings but lacks in dividend payout ratio i..e, 21.47 and Syndicate Bank was at the top in terms of liquidity with 95.60 approved securities to total securities . Central Bank Of India was at bottom position in terms of Capital Adequacy due to high debt equity ratio with 33.38, Asset Quality, Management, Earning Quality. Bank of India was at bottom position in terms of Liquidity. Table: Overall Performance of the Banks in the Year 2007 Overall Performance of the Banks in the Year 2007 Indian Overseas Bank Corporation Bank Andhra Bank OBC Canara Bank 1 2 3 3 5 Bank of Baroda United Bank of India Bank of Maharashtra Dena Bank Central Bank of India 16 17 18 18 20

On the basis of composite score obtained from the five parameters, Indian Overseas Bank, Canara Bank, Union Bank of India, Indian Bank, Andhra Bank, Corporation Bank was on the top positions. However, Bank of Baroda, State Bank of India, United Bank of India, Dena Bank, Central Bank of India was positioned at bottom five.

Financial Year 2008(From Annexure IV A & B 2008) Table: Outcome of Analysis for the year 2008 Outcome of Analysis for the year 2008 Parameter Capital Adequacy Asset Quality Management Earnings Liquidity Bank at Top Position State Bank of India Andhra Bank Bank of India Indian Bank Indian Overseas Bank Bank at Bottom Position Central Bank of India Central Bank of India, UCO Bank Central Bank of India Central Bank of India United Bank of India

In the financial year 2008, based on the total score obtain from five parameters (CAMEL), State Bank Of India was at the top position in terms of Capital Adequacy Ratio which was 13.47 and with low debt equity ratio 10.96 also with high ratio of government securities to total assets25.38 but, lacks in total advances to total assets which was 57.80 , Andhra Bank was at the top in terms of Asset quality with 1.1 Gross NPAs and 0.15 with Net NPAs , Bank Of India was at the top on the basis of Management with 652 business per employee and 4.95with profit per employee. Table: Overall Performance of the Banks in the Year 2008 Overall Performance of the Banks in the Year 2008 Indian Overseas Bank Andhra Bank Indian Bank Union Bank of India Corporation Bank 1 2 3 4 5 Bank of Maharashtra Dena Bank United Bank of India Central Bank of India UCO Bank 16 17 18 19 20

Indian Bank was at the top in terms of Earnings but, lack in less dividend payout ratio which was 16.1 and Syndicate Bank was at the top in terms of liquidity with 89.00 in government securities to total investments and with 92.00 in approved securities to total

securities . Central Bank Of India was at bottom position in terms of Capital Adequacy, Asset Quality, Management, Earning Quality. United Bank Of India was at bottom position in terms of Liquidity with 68.81 in government securities to total investments and 69.50 in approved securities to total securities. On the basis of composite score obtained from the five parameters, Andhra Bank, Indian Overseas Bank, Union Bank of India, Canara Bank,Indian Bank were on the top positions. However, Allahabad Bank, Dena Bank, UCO Bank United Bank of India, Central Bank of India was positioned at bottom five. Financial Year 2009(From Annexure V A & B 2009) In the financial year 2009, based on the total score obtain from five parameters (CAMEL), Canara Bank was at the top position in terms of Capital Adequacy Ratio 14.1 and has high ratio in government securities to total assets i..e,23.14 and lacks in high debt equity ratio which is 18.62 , Andhra Bank was at the top in terms of Asset quality with 0.83 Gross NPAs and 0.18 Net NPAs, Bank Of India was at the top on the basis of Management with high ratios in business per employee i..e, 833 and profit per employee is 7.49 and also with Total Advances to Total Deposits75.33. Table: Outcome of Analysis for the year 2009 Outcome of Analysis for the year 2009 Parameter Capital Adequacy Asset Quality Management Earnings Liquidity Bank at Top Position Canara Bank Andhra Bank Bank of India Indian Bank Andhra Bank Bank at Bottom Position UCO Bank State Bank of India United Bank of India United Bank of India Corporation Bank

Indian Bank was at the top in terms of Earnings but lacks in dividend payout ratio i.e., 21.34 and Andhra Bank was at the top in terms of liquidity with 90.54 approved securities to total securities. UCO was at bottom position in terms of Capital Adequacy due to high debt equity ratio with 36.11, State Bank of India in Asset Quality, United

Bank of India in Management and Earning Quality Ratio. Corporation Bank was at bottom position in terms of Liquidity. On the basis of composite score obtained from the five parameters, Andhra Bank, Punjab National Bank, Canara Bank, Punjab & Sind Bank, Indian Bank, were on the top positions. However, Bank Of Maharashtra, Central Bank Of India, Dena Bank, UCO Bank, United Bank of India was positioned at bottom five. Table: Overall Performance of the Banks in the Year 2009 Overall Performance of the Banks in the Year 2009 Andhra Bank Punjab National Bank Indian Bank Canara Bank Punjab & Sind Bank 1 2 3 4 5 Bank of Maharashtra Central Bank of India Dena Bank UCO Bank United Bank of India 16 17 18 19 20

Overall Performance (From Annexure VI)

Table: Overall Ranking on 5 year performance Overall Ranking on 5 year performance 2005 2006 2007 2008 2009 Composite Average 2 4.2 4.2 4.8 5.6 7.4 7.8 8.8 9 10.4 10.8 10.8 Overall rank for 5 years 1 2 2 4 5 6 7 8 9 10 11 11

Andhra Bank Corporation Bank Indian Bank India Overseas Bank Canara Bank Punjab National Bank OBC Vijaya Bank Union Bank of India Allahabad Bank Punjab & Sindh bank Syndicate Bank

3 2 5 10 5 4 13 1 11 8 17 9

1 2 4 3 6 13 7 5 11 10 18 8

3 2 6 1 5 11 3 8 7 8 8 12

2 5 3 1 8 7 10 15 4 12 6 14

1 10 3 9 4 2 6 15 12 14 5 11

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State Bank of India Bank of India Bank of Broda Bank of Maharashtra United Bank of India UCO Bank Dena Bank Central Bank of India

7 15 17 14 11 16 19 20

8 17 11 16 15 14 19 20

13 14 16 18 17 14 18 20

13 9 11 16 18 20 17 19

13 7 8 16 20 19 18 17

10.8 12.4 12.6 16 16.2 16.6 18.2 19.2

11 14 15 16 17 18 19 20

If we consider the time span of 5 years from 2005 to 2009, Andhra Bank had scored the highest average ranks with 3rd as least rank scored in 2005 & 2007. Indian Overseas bank was able to rank 4th overall for five years, but they were able to get this position only due to their 1st spot in two years. Bank of Baroda have shown a improving pattern in these years, they were spotted 17th in 2005 & they were able to improve its spot to 8th in 2009, which is a good point for the bank Canara Bank has shown a consistent position in all these years, Canara Bank have been spotted around average ranks ranging between 4 to 8 & so the overall rank for 5 years is 5th & same was the case with Allahabad Bank with overall rank of 10 for 5 years. Punjab & Sind Bank has also shown a substantial growth, by raising its position of 17th in 2005 to 8th in 2007 & 5th in 2009, but due to bad position in previous years it was able to rank only 11th in overall performance ranking same was the case with Bank of India which was at 15th rank in 2007 & later in 2009 they were spotted at 7th rank. Performance of Vijaya Bank has been declining year by year, they were at 1st position in 2005 but later on they were at 15th in 2009. Position of State Bank of India has shown a mixed results, we came to know that even though it is a biggest bank in India but SBI has not availed good ranks over the time period, they were just near the top five banks in 2005 & 2006 at 7th & 8th rank respectively but later on in all SBI was able to get only 13th in all years. So overall rank of SBI was just 11th rank.

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THE CAPITAL ADEQUACY RATIO FOR 3 MAJOR PRIVATE BANKS IN INDIA Particulars ICICI Bank HDFC Bank AXIS Bank 2004 10.36% 11.66% 11.21% 2005 11.78% 12.16% 12.66% 2006 13.35% 11.40% 11.08% 2007 11.69% 13.08% 11.57% 2008 13.97% 13.73% 13.99%

INTERPRETATIONS:Reserve Bank of India prescribes Banks to maintain a minimum Capital to riskweighted Assets Ratio (CRAR) of 9 percent with regard to credit risk, market risk and operational risk on an ongoing basis, as against 8 percent prescribed in Basel Documents. Capital adequacy ratio of the ICICI Bank, was well above the industry average of 13.97% t.CAR of HDFC bank is below the ratio of ICICI bank. HDFC Banks total Capital Adequacy stood at 13.6% as of March 31, 2008. The Bank adopted the Basel 2 framework as of March 31, 2009 and the CAR computed as per Basel 2 guidelines stands higher against the regulatory minimum of 9.0%.And the capital adequacy ratio of Axis bank is the highest among the three banks and it is above the industry average, which shows the improvement from the last 5 years. Higher the ratio the banks are in a comfortable position to absorb losses. (B)ASSET QUALITY:
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TABLES SHOWING THE NPA OF 3 MAJOR BANKS IN INDIA Gross NPA Particulars ICICI Bank HDFC Bank AXIS Bank March,08 1.43% 3.01% .83% March,07 1.40% 1.95% 1.14% March,06 1.45% 1.14% 1.69% March,05 1.72% 2.87% 1.99% March,04 1.89% 4.69% 2.93%

Net NPA Particulars ICICI Bank HDFC Bank AXIS Bank March, 08 1.39% .47% .42% March, 07 .94% .43% .72% March, 06 .67% .44% .99% March, 05 1.56% .24% 1.39% March, 04 2.19% .16% 1.20%

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INTERPRETATIONS: Above ratios show the highest NPA of ICICI bank from the last 5 years among the 3 banks. HDFC Banks asset quality is the best in the Indian banking sector despite the bank sustaining aggressive growth for the past several quarters. The bank has maintained its net NPAs at 0.47% as at end FY08. It has continued to make general provisions and holds specific general provisions on its standard customer assets that are higher than regulatory requirements. Axis bank is also approaching to this level. (C) MANAGEMENT SOUNDNESS Asset Turnover Ratio Particulars ICICI Bank HDFC Bank AXIS Bank 2004 2.26% 2.80% 3.56% 2005 2.14% 2.89% 3.01% 2006 2.94% 3.50% 4.00% 2007 4.52% 4.33% 4.97% 2008 5.61% 5.18% 6.32%

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INTERPRETATION: Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. From the above information,it is clear that the asset turnover ratio of axis bank is increasing every year and highest comparing with the ICICI and HDFC bank in 2008.It shows the banks efficiency in using its assets to generate high revenue .

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(D) EARNINGS & PROFITABILITY The ratio that is used for the profitability for the 3 banks are as follows: ROA-Return On Assets Particulars ICICI Bank HDFC Bank Axis Bank 2004 1.32% 1.40% 1.27% 2005 1.17% 1.42% 1.08% 2006 1.05% 1.41% 1.11% 2007 0.78% 1.40% 1.06% 2008 0.71% 1.42% 1.16%

INTERPRETATIONS: A measure of a company's profitability, equal to a fiscal year's earnings divided by its total assets, expressed as a percentage. The above table shows the highest ratio of HDFC Bank for the last 5 years.ROA of ICICI bank is falling every year .And Axis Bank has maintained almost the same level of the ratio for the last 5 years.

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(E) LIQUIDITY: Credit Deposit Ratio Banks ICICI Bank HDFC Bank Axis Bank 2004 97.38% 55.89% 43.63% 2005 89.17% 64.87% 47.40% 2006 87.59% 65.79% 52.79% 2007 83.83% 66.08% 59.85% 2008 84.99% 65.28% 65.94%

INTERPREATIONS: Credit deposit ratio is a tool used to study the liquidity position of the bank. A high ratio shows that there is more amounts of liquid cash with the bank to met its clients cash withdrawals. We can find from the above table, ICICI bank has maintained high ratio during the period of study. But the AXIS Bank has maintained a least ratio during all years of study. HDFC Bank has maintained the cdr ratio lower than ICICI but higher than Axis bank.But in 2008 CDR of Axis bank was more than HDFC bank.

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FINDINGS, RECOMMENDATIONS & SUGGESTIONS

This study investigates the performance of the nationalized banks through the help of the CAMEL model. For the purpose, a sample of 20 nationalized banks is taken. For the CAMEL Analysis, the data of five years, i.e., from 2004-05 to 2008-09, has been used. After making an analysis of the CAMEL parameters, all the banks were first individually ranked for each ratio on a single parameter. Then the composite some of each bank for each parameter was arrived at by taking an average of the individual ranks achieved by the banks for each ratio in a single parameter. Then, all the banks for each parameter were ranked in the proper order i.e., ascending/descending based on the parameter. According to the model, there are various parameters which tell us about the performance of the banks in comparison to other banks. These parameters are CCapital Adequacy, A- Asset Quality, M-management, E- Earnings and L- Liquidity. There are various ratios in all of these parameters for example in Capital Adequacy the various ratios are Capital Adequacy Ratio, Debt/Equity, Advances/Assets and Government Securities/Investment. The analysis was done, by calculating each of the ratios individually for the five financial years and then ranking the banks on the basis of their performance in comparison to other banks. Then, the ratios of the various parameters on a particular year were combined with each year and group average was calculated. After that, group rank was calculated which was again in comparison to other banks. When, all the ratios of all the parameters of all the years were calculated, the next step was to find the best performing bank for each year. The ranks of all parameters of a year were combined and then a composite rank was calculated. This process of calculating composite rank was repeated for all the next financial years too. The composite rank was calculated by adding up the ranks of all the parameters for that year and dividing by five. After that, again the banks were ranked using the rank formula in Microsoft excel sheet, in comparison to other ranks. Here, the bank which had the least composite average was the best and so was ranked the best that is 1st.

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Economic development of any country is mainly influenced by the growth of the banking industry in that country. The banking industry has gone through innumerable twists and turns in the post independence era. The banking industry in India is growing at a fast pace. Increased economic activity coupled with de-regulation has further strengthened the position of Indian bank. The growth has not been restricted to any specific sector, all sectors (public sector, private sector and foreign) have shown good growth. CAMEL provides a measurement of a banks current overall financial, managerial, and operational and compliance performance. It is a diagnostic model and management tool that measures capital adequacy, asset quality, management, earnings and liquidity of Financial Institutions. During the course of the rating procedure, attention is focused on the financial strength and payment capacity of the Financial Institution based on its historical trends, typically going back five years, and compared against its peers. Overall performance ranking table shows that Andhra Bank had scored the highest average ranks with 3rd as least rank scored in 2005 & 2007. Indian Overseas bank was able to rank 4th overall for five years, but they were able to get this position only due to their 1st spot in two out of five years. Bank of Baroda have shown a improving pattern in these years, they were spotted 17th in 2005 & they were able to improve its spot to 8th in 2009, which is a good point for the bank, they were able to attain such a growth improving itself on all parameters of CAMEL model. Canara Bank has shown a consistent position in all these years, Canara Bank have been spotted around average ranks ranging between 4 to 8 & so the overall rank for 5 years is 5th & same was the case with Allahabad Bank with overall rank of 10 for 5 years. Punjab & Sind Bank has also shown a substantial growth, by raising its position of 17th in 2005 to 8th in 2007 & 5th in 2009, but due to bad position in previous years it was able to rank only 11th in overall performance ranking same was the case with Bank of India which was at 15th rank in 2007 & later in 2009 they were spotted at 7th rank.

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Performance of Vijaya Bank has been declining year by year, they were at 1st position in 2005 but later on they were at 15th in 2009. Decreasing Asset Quality ratios & Management ratios were the main reason for the fall in their rank. Position of State Bank of India has shown a mixed results, we came to know that even though it is a biggest bank in India but SBI has not availed good ranks over the time period, they were just near the top five banks in 2005 & 2006 at 7th & 8th rank respectively but later on in all SBI was able to get only 13th in all years. So overall rank of SBI was just 11th rank. Asset quality was the main are that has to be focused by the SBI for improving its position. In bottom five Central Bank of India was on the last position i.e. 20th rank, following the other banks like Dena Bank, UCO, and United & Bank of Maharashtra. The capital adequacy ratio of all the three private sector banks is above the minimum requirements and above the industry average. HDFC Bank has maintained a standard for the NPAs in the period of 2004-2008. AXIS has shown remarkable decrease in NPAs in the same period. But the NPA of ICICI bank is increasing every year. Professional approach that has been adopted by the banks in the recent past is in right direction & also it is the right decision. HDFC has shown a good growth record for its ROA. But ICICI Bank has gone down in its performance with negative growth. AXISs performance has been average. Banks should maintain quality securities with good liquidity to meet contingencies. ICICI Bank is fulfilling this requirement by maintaining highest credit deposit ratio. All banks have ventured into many financial areas and are in the league of Universal Banking. They have also become sensitive to customer needs. RECOMMENDATIONS: Allahabad Bank need to improve its Earning, Liquidity position as they have been ranked 10th on overall performance for 5 years, but these are the two parameters were the bank is lacking. Bank of Baroda & Bank of India both need to improve its investments in government & approved securities, as this was the parameter where bank was not able to outperform.

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Bank of Maharashtra should decrease its debt equity ratio so as to attract new investors & also decrease fixed charge on banks earnings.

Canara Bank should improve their advancing techniques, as they are lacking in controlling their net NPAs & also all ratios considered under Earnings parameter need be raised.

Corporation bank has shown a declining trend in its Capital adequacy ranks, specially its Government securities to total assets ratio is very low, which also reduced the liquidity. So we recommend Corporation bank to improve its Government Securities holdings.

State Bank of India, which is the largest bank of Indian banking industry, is performing good under the capital adequacy parameter in all years but the main are of concern for the bank is the Asset quality & the Management where they have been ranked 15th in Asset quality in all years & 11th in Management. So we recommend the body to improve its NPAs position

In Punjab & Sind 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.

United Bank of India 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.

Indian Overseas Bank need to improve its asset quality ratio, as its rank has been going down year by year, so they must make necessary arrangements to make sure that they have lower NPAs or should work on more careful advancing activities.

Vijaya Bank should improve its earning capacity ratios, as its operating profit to average working fund is very low, which also hinders its management quality. The Liquidity position of the bank has also not been so good, Vijaya Bank need to increase its holdings in government securities.

The banks should adapt themselves quickly to the changing norms.

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The system is getting internationally standardized with the coming of BASELL II accords so the Indian banks should strengthen internal processes so as to cope with the standards.

The banks should maintain a 0% NPA by always lending and investing or creating quality assets which earn returns by way of interest and profits.

The banks should find more avenues to hedge risks as the market is very sensitive to risk of any type.

Have good appraisal skills, system, and proper follow up to ensure that banks are above the risk.

SUGGESTIONS FOR FURTHER RESEARCH

Research on which industries are best suited for the use of the CAMELS

Framework. Research on how other variables can be added or how variables can be

selected to suit the industry needs. Research on why the CAMELS Framework can not be used as a tool of

performance evaluation. Websites Visited

http://www.stock-picks-focus.com/hdfc-bank.html http://www.stock-picks-focus.com/axis-bank.html http://www.stock-picks-focus.com/icici-bank.html http://www.basel2implementation.com/pillars.htm http://www.icicibank.com http://www.hdfcbank.com http://www.axisbank.com http://www.allbankingsolutions.com/camels.htm http://www.shkfd.com.hk/glossary/eng/RA.htm

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"http://www.wikinvest.com/wiki/CAPITAL_ADEQUACY_RATIO"
http://www.answers.com/topic/basel-ii

http://chestofbooks.com/finance/banking/English-Manual/Chapter-I-The-Origin-AndUses-Of-Banks.html

http://www.allbankingsolutions.com/CAMEL.htm Accessed on 27/2/2010

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