PERFORMANCE EVALUATION OF PUBLIC SECTOR BANKS USING CAMELS MODEL

Abstract

In the current landscape, the banking sector stands out as one of the most rapidly expanding industries, attracting significant investments. With the increasing complexity of today’s banking systems, I was motivated to assess the performance of banks. While several frameworks exist for evaluating bank performance, I selected the CAMELS Model due to its comprehensive coverage of key parameters-Capital, Assets, Management, Earnings, Liquidity, and Sensitivity to Market Risk. My research into various sources confirmed that this model offers a thorough assessment across all critical dimensions. After finalizing the CAMELS framework, I included all public sector banks in my study. I collected annual reports for bank covering the five-year period from 2020- 2024. Using this data, I calculated relevant financial ratios and interpreted the results. Each CAMELS parameter and its respective ratios were assigned weights based on their significance and my understanding of their impact. The weighted scores were then used to evaluate each bank’s performance, with marks assigned accordingly. By aggregating these marks, I was able to determine an overall rating for each institution. The research seeks to bridge gaps in available literature through presenting a complete, recent appraisal that includes the recent regulatory developments like Basel III norms, and through the use of inferential statistical methods, such as ANOVA, to test performance differences among banks for significance. The results reveal notable differences in bank performance across various CAMELS dimensions, highlighting specific areas for improvement, particularly in Capital Adequacy, Asset Quality, and Sensitivity to Market Risk. This study provides useful information on the financial health of PSBs and presents suggestions for policy makers, regulators, and bank management to promote stability and growth in the sector. By adopting a holistic methodology and focusing on a current sample, this research contributes to the understanding of Indian banks’ financial performance and delivers actionable insights for stakeholders.