PERFORMANCE DETERMINANTS OF PRIVATE COMMERCIAL BANKS IN INDIA -A CAMEL ANALYSIS APPROACH FOR THE FINANCIAL YEARS 2017-2021

Abstract

In India, the banking sector is one of the most rapidly rising industries. The main purpose of this study is to evaluate the financial performances of a few select private banks and analyse them using the CAMEL Model. The observation period spans over five years, starting from 2017 to 2021. The CAMEL version aided in determining a bank's overall performance based on key prudential ratios such as capital adequacy, asset quality, management efficiency, earnings quality, and liquidity. Based on our Model analysis, we made the following observation by identifying the relative positions for each bank based on their financial performances. The rank order of the banks is ICICI Bank, HDFC Bank, Kotak Mahindra Bank, AXIS Bank, and YES Bank.

Full text

120 JOURNAL OF THE ASIATIC SOCIETY OF MUMBAI, ISSN: 0972-0766, Vol. XCV, No.39, 2022
PERFORMANCE DETERMINANTS OF PRIVATE COMMERCIAL BANKS IN INDIA - A
CAMEL ANALYSIS APPROACH FOR THE FINANCIAL YEARS 2017-2021
Dr.G.Kumar Assistant Professor of Statistics Department of Mathematics, SRM Arts and Science
College, Kattankulathur - 603 203 :kumar@srmasc.ac.in
Ms.Maria Christy Lecturer, Department of Accounting and Finance, School of Entrepreneurship
and Business Innovation, University of Guyana, Georgetown, Guyana, South America
:maria.christy@uog.edu.gy
Dr.Vincent Raja A Senior Lecture Department of Mathematics, Physics and Statistics, Faculty of
Natural Sciences, University of Guyana, Georgetown, Guyana, South America
E-mail:vincent.anthonisamy@uog.edu.gy
Abstract:
In India, the banking sector is one of the most rapidly rising industries. The main purpose of
this study is to evaluate the financial performances of a few select private banks and analyse them
using the CAMEL Model. The observation period spans over five years, starting from 2017 to 2021.
The CAMEL version aided in determining a bank's overall performance based on key prudential
ratios such as capital adequacy, asset quality, management efficiency, earnings quality, and liquidity.
Based on our Model analysis, we made the following observation by identifying the relative
positions for each bank based on their financial performances. The rank order of the banks is ICICI
Bank, HDFC Bank, Kotak Mahindra Bank, AXIS Bank, and YES Bank.
Keywords: Private sector bank, CAMEL model, Financial Performance, Prudential Ratios.
Introduction
The banking sector is an essential aspect of the Indian financial system. It plays a key role in
the monetary improvement of India by stimulating capital formation, innovation, and monetization
for further economic policy. With the advancements in computational tools, the overall performance
of assessment structures has been developed over a period of time from single aspect structures to
more complete structures overlaying all components of banks. After reforms, there have been some
visible enhancements happening within the Indian banking system. Continuous performance
evaluation is frequently required to maintain an economy's monetary balance. In the midst of a
world-huge banking disaster in bygone years, it turned out to be crucial to assess the average overall
performance of banks through enforcing a regulatory framework under banking supervision. The
CAMEL Model is one such score device that proved to be higher for overall performance
measurement, assessment, and strategic planning for future boom and improvement of the Indian
banks in terms of converting needs of this sector.
The organisation of the present study is as follows: In Section 2, we have presented a
literature review related to the study. Section 3 deals with the methodology for the CAMEL
parameters. Section 4 contains the results and discussions. In Section 5, we discuss the concluding
remarks of the study.
Review of Literature
In the system of evaluation of the financial institution’s financial balance, the
administrators, researchers, students and academicians have performed a few researches on the
CAMEL model but with drastic durations and views. Godlewski, C. (2003) tested the solvency,
performance, and liquidity of Banks in Japan by applying the usage of the CAMEL rating technique,
for a period of 1993-1999, with the inspiration of financial ratio.
Prasuna D. G.(2003) discussed the general effectiveness of 65 banks in India during the
period of 2003–2004 by means of the use of the even-toed unregulated version. The author
concluded that in this competitive environment, current products, superior offerings, and excellent
pricing benefited the customer's neighbourhood unit. According to Bhayani, S. (2006), rank ordered

121 JOURNAL OF THE ASIATIC SOCIETY OF MUMBAI, ISSN: 0972-0766, Vol. XCV, No.39, 2022
the overall performance of four significant new private sector banks as: ICICI, IBDI, HDFC, and
UTI. Gupta, R. & Kaur (2008), checked financial data over a five-year period starting from 2003 to
2007, in order to determine the overall performance of individual banks in various destinations in
India. Ramachandran and Kavitha (2009) argued that in the first half of the examination period, the
nationalized financial institution demonstrated a position of provisions and contingencies to current
expenses, and in the second half of the examination period, the Capital Adequacy Ratio (CAR) was
at a certain level. Also, in terms of organizational structure, the personal financial institution has
switched from a different interest charge ratio to a capital adequacy ratio.
Sreeramulu et al. (2010) examined the performance of the Indian banking industry as a whole
throughout the time periods 1999–2003 and 2004–2008. A Cobb-Douglass stochastic frontier model
is observed to gauge the performance of the monetary group. According to the estimate, there will
likely be significant performance growth in the Indian banking sector between 2004 and 2008
compared to 1999 to 2003. The improvements made to the Indian banking sector as a result of
deregulation, globalization, and technological advancements in data generation. However, there may
be a lot of room for Indian financial organizations to enhance performance in this way.
Sufian Fadzlan (2012) studied the internal and external factors that affected the overall
performance of banks functioning in one sector of the Indian banking industry. The empirical results
of this investigation supported the notion that changes in credit ratings, network operational costs,
liquidity, and time have statistically sizable effects on the profitability of Indian banks. Sushendra
Kumar Misra (2013), applied the CAMEL technique to evaluate the overall performance and
financial stability of a national financial institution. The results demonstrated that there may be a
need to improve the institution's characteristics with regard to asset quality and capital sufficiency.
Santosh Kumar and Roopali Sharma (2014) analysed secondary sources of data for the
financial years starting from 2007–2008 to 2012–2013 about the top eight market-capitalized banks
and computed several parameters affecting their performances. Vinod & Bhawna, (2017) considered
the top five private banks in the study, and their performances were compared with the parameters of
the CAMEL model. It was discovered that the Axis Bank's performance was in the top position while
the IndusInd Bank's was in the bottom position when compared to other banks under the study. The
poor performance was caused mainly by capital adequacy, income capability, and liquidity. Also,
IndusInd Financial Institution was advised to enhance its position in underserved areas.
Bothra & Purohit (2018) performed a comparative analysis for ICICI and SBI financial
institutions using the CAMEL method, and the results showed that the ranking of ratios differs
between ICICI and SBI. However, there hasn't been a statistically significant difference between the
average CAMEL ratios. Further, SBI wants to strengthen its position with regard to control
effectiveness, greater income generation, and liquidity, whereas ICICI Bank needs to improve its
position with regard to capital sufficiency and asset fineness.
The study became systematic in nature and was based on secondary statistics spanning a 5-
year period from 2017 to 2021.The records are from the yearly reports of the following private zone
banks: The following banks are based totally on equality of market place capitalization:
Private Bank
1. HDFC Bank 2. ICICI Bank 3. Kotak Mahindra Bank 4. AXIS Bank 5. YES Bank
The overall performance of the banks was measured through different ratios of the CAMEL
model (Table 1).
Table1: CAMEL Ratios
S.No
CAMEL Parameters
Ratios
1
C: Capital Adequacy
Capital Adequacy Ratio
2
A: Assets Quality
Net NPA to Net Advances
Percentage Net NPAS
Return on the net worth

122 JOURNAL OF THE ASIATIC SOCIETY OF MUMBAI, ISSN: 0972-0766, Vol. XCV, No.39, 2022
3
M: Management Efficiency
Total Asset Tune Over Ratio
Net Profit to Total Fund ratio
4
E: Earnings Quality
Operating Profit per share
Net Profit Margin
5
L: Liquidity
Cash Deposit Ratio
Investment to Deposit
Current Ratio
All of the banks were based totally on the sub-parameters of each parameter. The sum of
those ranks to arrive at the character bank organisation common for each parameter Ultimately, the
composite scores for the banks had at after computing the average of those group averages. Banks'
positions within the ascending/descending order were primarily based on the character. The CAMEL
parameters are discussed under:
Capital Adequacy
It is the responsibility of a financial institution to have the self- assurance of depositors and
shareholders. It suggests the massive economic circumstances of banks and additionally the
functionality of control to collect the need for added capital. The following ratios calculate capital
adequacy: CAR: (Capital Adequacy Ratio) The capital adequacy ratio is to assure that banks can take
a rational share of losses that take place in operations, i.e., financial ones. In assembly losses, the
institution's capability is limited. Banks must maintain a CAR of 10%. According to current RBI
guidelines, CAR is approximately 9% for existing banks, 10% for the private sector and banks with
insurance underwriting enterprises, and 15% for rural banks.
Asset Quality
The quality of assets is an important parameter in determining the strength of a bank. The logic
behind calculating the asset quality is to determine the factor of non-performing assets (NPA) as a
fraction of the bank's total assets. The ratios required to review the asset quality are
 Percentage of Net NPAs: This ratio determines a bank's credit risk competence .and debt
recovery.
 The Net NPA to Net Advances is the proportion of advances which turned into NPA after
adjusting for the provisions already made by the bank/financial institution.
Management Quality
Management performance is fundamental to the choice-making ability of the managing board, as
elements of the CAMEL Model. The ratio is to capture the possible subjective dynamics of the
effectiveness of management. The ratios to assess the management efficiency are:
 Return on Net worth (RON): This metric displays the percentage return on total net worth of
the bank.
 TATO (Total Asset Turnover Ratio): The ratio is calculated as Net Sales/Total Assets.
 Net Profit to Total Fund Ratio (NPTF): NPTF shows the output of management decisions in
the bank's selection of assets and investment quality. It is a tool to compute the net profit gain
by the utilization of the total fund.
Earnings Quality
The quality of income determines the capability of a bank to earn consistently. It in particular
determines the profitability and productiveness of the bank, which explains the growth and
sustainability of future earnings capacity. The ratios given as an explanation for the capacity of
income creation are:
 Operating Profit per Share: This computes the earnings from operations of a bank for each
rupee spent as a working fund per share.

123 JOURNAL OF THE ASIATIC SOCIETY OF MUMBAI, ISSN: 0972-0766, Vol. XCV, No.39, 2022
 Net Profit Margin (NPM): The absolute value of a profit level expressed as a percentage is
examined by NPM. The ratio of net income to sales revenues, a comprehensive measure of a
company's profitability.
Liquidity
Due to competitive stress, managing liquidity in banks is an important task. Proper liquidity
management can be used to hedge the risk of liquidity and ensure a superior percentage of return on
invested funds. The liquidity position can be gauged by the following ratios:
 Cash Deposit Ratio (CD): This ratio compares cash on hand to deposits with the RBI.
Percentage of total deposits in a bank
 Investment to Deposit (ITD): This ratio computes the total security investment.
(Approved/non approved) regarding the total deposit.
 Liquid Ratio (LR): This current liability and current asset ratio calculation. It measures a
bank's ability to pay immediate and short-term obligations.
The chosen banks were ranked based on the values of the ratios. The banks with the highest
average value of the ratios were the banks with the top ratios ranked one, and so on, up to rank five,
with an interval of one. In the case of a tie, the average rank of the banks all ratios with a higher
value are ranked higher, except those referring to asset quality position, which are ranked in the
opposite order.
Results and Discussion:
The ranks of selected banks through special ratios and the use of the CAMEL rating
technique are calculated. Table 2: CAR (Capital Adequacy Ratio)
BANK
AXIS
BANK
HDFC
BANK
ICICI
BANK
KOTAK
MAHINDRA
BANK
YES BANK
2021
19.12
18.79
19.12
22.26
17.47
2020
17.53
18.52
16.11
17.89
8.46
2019
15.84
17.11
16.89
17.45
16.5
2018
16.57
14.82
18.42
18.22
18.4
2017
14.95
14.55
17.39
16.77
17
Average
16.802
16.758
17.586
18.518
15.566
Rank
3
4
2
1
5
The ratios measuring capital adequacy of decided on banks and the ranks assigned to them
are presented in Table 2. It’s far more clear that each bank has maintained a higher CAR than the
prescribed stage. It is determined that Kotak Mahindra Bank secured the top position with a
maximum average CAR of 18.518, followed by ICICI (17.586). Yes Bank had the lowest maximum
role and the lowest average CAR (15.566).
Table 3: Asset Quality Ratio
BANK
AXIS
BANK
HDFC
BANK
ICICI
BANK
KOTAK
MAHINDRA
BANK
YES
BANK
PercentageNet
NPAS
2021
1.05
1.32
1.14
1.21
5.88
2020
1.56
1.22
1.41
0.71
5.03
2019
2.06
1.36
2.06
0.75
1.86
2018
3.4
1.3
4.77
0.98
0.64
2017
2.11
1.05
4.89
1.26
0.81
Average
2.036
1.25
2.854
0.982
2.844

124 JOURNAL OF THE ASIATIC SOCIETY OF MUMBAI, ISSN: 0972-0766, Vol. XCV, No.39, 2022
Net NPA to
Net Advance
2021
1.06
0.4
1.24
1.21
5.88
2020
1.62
0.36
1.54
0.71
5.03
2019
2.2
0.39
2.29
0.75
1.86
2018
3.64
0.4
5.43
0.98
0.64
2017
2.27
0.33
5.43
1.26
0.81
Average
2.158
0.376
3.186
0.982
2.844
Combined
Average
2.097
0.813
3.02
0.982
2.844
Rank
3
5
1
4
2
The various ratios reflecting the asset quality status of the chosen banks were shown in Table
3 along with the corresponding rankings. ICICI bank took first place with a net NPA to advance ratio
of 3.186, followed by YES bank with a ratio of 2.844. The HDFC Bank score was at the very least
0.376. ICICI Bank (2.854) once again leads in terms of % Net NPAs, followed by YES Bank
(2.844). The last place holder with the lowest average was HDFC Bank. ICICI and YES Bank are in
first and second place, respectively, based on the group average of the sub-parameters (2.844). In
order to enhance the ratios, HDFC Bank's overall performance in net NPA to net advance declined.
Table 4: Management Efficiency
Table 4 displays the management efficiency ratios and accompanying rankings for the chosen
banks. In comparison to privately run banks like Kotak Mahindra and ICICI, HDFC had a RON of
closer to 15.4 percent. HDFC and Kotak Mahindra Bank are in first and second place based on the
group average for all sub-parameter.
Bank
AXIS
BANK
HDFC
BANK
ICICI
BANK
KOTAK
MAHINDRA
BANK
YES
BANK
Total Asset Tune
Over Ratio
2021
0.07
0.07
0.06
0.07
0.08
2020
0.07
0.08
0.06
0.08
0.08
2019
0.07
0.09
0.06
0.08
0.09
2018
0.07
0.08
0.06
0.08
0.08
2017
0.08
0.09
0.06
0.08
0.09
Average
0.072
0.082
0.06
0.078
0.084
Net Profit to Total
Fund ratio
2021
-1.08
0.94
1.08
1.09
-4.96
2020
-1.97
1.02
0.98
1.11
-15.4
2019
-0.99
1.17
0.52
1.35
-1.17
2018
0.11
1.77
0.87
1.7
1.58
2017
0.64
1.89
1.2
1.67
1.75
Average
-0.658
1.358
0.93
1.384
-3.64
Return on the net
worth
2021
6.48
15.27
11.9
10.95
-10.42
2020
1.57
15.35
7.98
11.86
-75.56
2019
7.01
14.12
3.82
11.47
6.39
2018
0.43
16.45
7.16
10.89
12.35
2017
6.59
16.26
10.03
16.4
15.09
Average
4.416
15.49
8.178
12.314
-10.43
Combined
Average
1.276
5.643
3.056
4.592
-4.662
Rank
4
1
3
2
5

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Table 5: Earnings Quality
Bank
AXIS
BANK
HDFC
BANK
ICICI
BANK
KOTAK
MAHINDRA
BANK
YES
BANK.
2021
10.35
25.74
20.61
25.94
-17.27
2020
2.59
22.86
11.27
22.08
-62.98
2019
8.50
21.29
5.91
20.32
5.80
NPM
2018
0.60
21.79
12.40
20.68
20.84
2017
8.26
20.99
16.71
19.27
20.27
Average
6.06
22.53
13.38
21.66
-6.67
2021
-16.59
32.21
63.25
21.25
-3.08
2020
-34.94
26.52
53.72
14.66
-25.77
2019
-21.18
57.70
44.70
16.50
-8.34
Operating
Profit per
share
2018
21.97
69.06
46.47
17.86
11.76
2017
26.41
55.44
53.74
15.16
40.69
Average
-4.87
48.19
52.38
17.09
3.05
Combined
Average
0.60
35.36
32.88
19.37
-1.81
Rank
4
1
2
3
5
Table 5 discusses the earnings quality ratios. HDFC Bank has a good net profit margin after
achieving a better operating profit. The bank has the highest operating profit per share and combined
average net profit margin. Table 6: Liquidity
Bank
AXIS
BANK
HDFC
BANK
ICICI
BANK
KOTAK
MAHINDRA
BANK.
YES
BANK
Current Ratio
2021
0.11
0.03
0.08
0.05
0.18
2020
0.13
0.04
0.1
0.04
0.27
2019
0.1
0.05
0.13
0.04
0.09
2018
0.1
0.04
0.11
0.05
0.07
2017
0.1
0.06
0.11
0.06
0.08
Average
0.108
0.044
0.106
0.048
0.138
Cash Deposit Ratio
2021
10.15
6.83
4.64
4.05
4.75
2020
10.1
5.75
4.95
4.17
5.03
2019
7.04
8.85
5.63
4.73
5.19
2018
7.64
9.95
5.93
4.69
5.35
2017
6.89
5.71
6.14
4..86
5
Average
8.364
7.418
5.458
3.528
5.064
Investment to
Deposit
2021
28.41
33.66
55.66
33.18
32.51
2020
27.91
32.96
56.79
29.92
40.07
2019
32.82
31.12
60.8
32.44
36.87
2018
32.57
31.55
61.6
31.32
34.47
2017
32.47
31.79
61.27
32.54
38.83
Average
30.836
32.216
59.224
31.88
36.55

126 JOURNAL OF THE ASIATIC SOCIETY OF MUMBAI, ISSN: 0972-0766, Vol. XCV, No.39, 2022
Combined
Average
13.103
13.226
21.596
11.819
13.917
Rank
4
3
1
5
2
Overall Ranking
The CAMEL model is used to grade the banks according to their performance, as was
indicated in the introduction to this study.
Table7: Overall Ranking Performance.
According to the CAMEL Parameter study for the years 2017–2021, ICICI Bank came out on
top with a combined average of 15.63, followed by HDFC with a combined average of 14.36, and
YES Bank came in last with a combined average of 5.17.
Conclusion
By taking into account all of CAMEL's factors, it is clear that ICICI Bank is in the best
position when compared to the other banks under consideration, according to the CAMEL Model.
While ICICI Bank does well overall in terms of asset quality, management effectiveness, and
earnings capability, it lags significantly in terms of capital acceptance. Because of its poor
performance in the areas of capital adequacy, earnings capability, and liquidity while doing well in
the area of capital acceptability, Yes Bank ranks lowest among banks when it comes to essential
factors. As a result, Yes Bank needs to strengthen certain risky areas of its position. The affiliated
banks with the lowest ratings' policymakers need to take significant action and work to identify their
problems using the information.
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Average
AXIS
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HDFC
BANK
ICICI
BANK
KOTAK
MAHINDRA
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YES
BANK
C
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16.758
17.586
18.518
15.566
A
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M
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32.88
19.37
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21.596
11.819
13.917
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