2012 camel framework

1. CHAPTER-1
INTRODUCTION
Today banks have a key role in all countries. And their policies and strategies affect
economic development, employment, prices, national income, etc. The operations of
banks are known as one of the most important economic activity in the world. Any
activity which requires investments and financial resources undoubtedly requires the
involvement of banks and financial institutions. Thus banks have the central role in
economy. On the other hand, Managing of a country's financial system requires a
variety of ways that enable financial institutions to identifying of management problems
to be responsible for protecting the citizens and the entire system because existing
problems due to poor management of bank, threaten the entire financial system of a
country. Achieving to the components of a strong and efficient banking system,
achieving goals, efficient use of resources and operating efficiently have been
considered for many years so it requires assessment of bank's performance. Evaluation
of bank performance is very important for Bankers due to the need to protect the
banking operations against continuous risks or due to gambling-incentives related to
capital market. In addition, there are numerous studies on financial interventions and its
effect on efficiency of economic growth and also other studies on bank failures and its
relationship with systemic crisis which demonstrate the important of performance
evaluation. Today, the bank performance has become a favorite subject for many
stakeholders such as customers, investors and the general public. There is a wide
range of indicators of financial reports to evaluate financial performance. But the
important criteria to determine the compatibility and health of a financial organization act
as some mediators to measure profitability and liquidity of the organization. Among the
various criteria; Basel Committee on Banking Supervision proposed the CAMEL
component to investigate financial organizations in 1988.
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2. CAMEL model is a simple and appropriate model for managerial and financial
assessment of organizations. It is classified as a modern approach to evaluate the
performance. However, this method has been used more in foreign countries but in our
country little efforts has been done to introduce this model and some banks use it to
measure their performance. But it is not used as a formal method which Central Bank
introduces it. So there is still a need for further investigation in this field. In this study the
CAMEL model was used to measure and compare the financial performance of public
and private commercial banks of Qom city. For this purpose we measure the
dimensions of the CAMEL model such as capital adequacy, asset quality, management
quality, earning performance and liquidity.
HISTORY OF CAMEL FRAMEWORK:CAMELS Rating Framework
CAMEL model of rating was first developed in the 1970s by the three federal
banking supervisors of the U.S (the Federal Reserve, the FDIC and the OCC) as part of
the regulators‘ ―Uniform Financial Institutions Rating System‖, to provide a convenient
summary of bank condition at the time of its on-site examination. The banks were
judged on five different components under the acronym C-A-M-E-L: Capital adequacy,
Asset quality, Management, Earnings and Liquidity. The banks received a score of ‗1‘
through ‗5‘ for each component of CAMEL and a final CAMEL rating representing the
composite total of the component CAMEL scores as a measure of the bank‘s overall
condition. The system of CAMEL was revised in 1996, when agencies added an
additional parameter ‗S‘ for assessing ―sensitivity to market risk‖, thus making it
‗CAMELS‘ that is in vogue today.
This system has applied by National Credit Union Administration (NCUA) in
October 1987. Also Federal Reserve Bank of America assesses its banks on a scale of
one to five by using the CAMEL model components which is monitoring various aspects
of bank's health. The rank 1 is the highest rank (strongest performance) and rank 5 is
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3. the lowest rank (weakest performance). Reliability, profitability and liquidity are the most
important criteria for assessing the competency performance of a bank. Therefore,
since 1988 the Basel Committee on Banking Supervision has stated that the CAMEL
model is necessary to evaluate financial institution. In 1997 another component was
added to the CAMEL model which was called market risk (S). However, Most of
developing countries use CAMEL instead of CAMELS to evaluate the performance of
financial organizations. It means they don't consider the market risk. Given that our
country is a developing country so in this Study we used the CAMEL model.
CAMELS‘ framework is a common approach to evaluate the financial health of the
organization. This system was created by U.S. bank supervising organizations. Also the
Asian Development Bank, African Development Bank, Central bank of America (the
Federal Reserve Bank) and the World Bank use these parameters to evaluate the
performance of financial organizations. In addition, the International Monetary Fund use
compressed index of financial institutions to evaluate the accuracy of the financial
systems of the members. Testing CAMELS system needs information from various
sources such as balance sheet financing, financing sources, data macroeconomic,
budget and cash flow forecasting, staffing and operation. In this model, the overall
condition of the banks and their strengths and weaknesses are assessed.
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4. CHAPTER-2
REVIEW OF LITERATURE
In the process of continuous evaluation of the bank‘s financial performance both in
public sector and private sector, the academicians, scholars and administrators have
made several studies on the CAMEL model but in different perspectives and in different
periods.
Cole et al. (1995) conducted a study on ―A CAMEL Rating's Shelf Life‖ and their findings
suggest that, if a bank has not been examined for more than two quarters, off-site
monitoring systems usually provide a more accurate indication of survivability than its
CAMEL rating.
Godlewski (2003) tested the validity of the CAMEL rating typology for bank's default
modification in emerging markets. He focused explicitly on using a logical model applied
to a database of defaulted banks in emerging markets.
Said and Saucier (2003) examined the liquidity, solvency and efficiency of Japanese
Banks using CAMEL rating methodology, for a representative sample of Japanese
banks for the period 1993- 1999, they evaluated capital adequacy, assets and
management quality, earnings ability and liquidity position.
Prasuna (2003) analyzed the performance of Indian banks by adopting the CAMEL
Model. The performance of 65 banks was studied for the period 2003-04. The author
concluded that the competition was tough and consumers benefited from better services
quality, innovative products and better bargains.
Dervizet al. (2008) investigated the determinants of the movements in the long term
Standard & Poor‘s and CAMEL bank ratings in the Czech Republic during the period
when the three biggest A Camel Model Analysis of Nationalized Banks in India
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5. K.V.N.Prasad, G. Ravinder-25- banks, representing approximately 60% of the Czech
banking sector's total assets, were privatized (i.e., the time span 1998-2001).
Bhayani (2006) analyzed the performance of new private sector banks through the help
of the CAMEL model. Four leading private sector banks – Industrial Credit & Investment
Corporation of India, Housing Development Finance Corporation, Unit Trust of India and
Industrial Development Bank of India - had been taken as a sample.
Gupta and Kaur (2008) conducted the study with the main objective to assess the
performance of Indian Private Sector Banks on the basis of Camel Model and gave
rating to top five and bottom five banks. They ranked 20 old and 10 new private sector
banks on the basis of CAMEL model. They considered the financial data for the period
of five years i.e., from 2003-07.
MIhir Dash (2009) ―A CAMEL analysis of the Indian Banking Industry‖ compares the
performance of public sector banks with private/foreign banks under the CAMEL
framework. He concluded that private/foreign banks fared better than public sector
banks on most of the CANEL factors in the study period.
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6. CHAPTER-3
THE INDUSTRY AND COMPANY PROFILE
INTRODUCTION
The banking section will navigate through all the aspects of the Banking System
in India. It will discuss upon the matters with the birth of the banking concept in the
country to new playersadding their names in the industry in coming few years.The
banker of all banks, Reserve Bank of India (RBI), the Indian Banks Association (IBA)
and top 20 banks like IDBI, HSBC, ICICI, ABN AMRO, etc. has been well defined
under three separate heads with one page dedicated to each bank. However, in the
introduction part of the entire banking cosmos, the past has been well explained
under three different heads namely:
History of Banking in India
Nationalization of Banks in India
Scheduled Commercial Banks in India
The first deals with the history part since the dawn of banking system in India.
Government took major step in the 1969 to put the banking sector into systems and it
nationalised 14 private banks in the mentioned year. This has been elaborated in
Nationalisation of Banks in India. The last but not the least explains about the scheduled
and unscheduled banks in India. Section 42 (6)(a) of RBI Act 1934 lays down the
condition of scheduled commercial banks.
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7. History of Banking in India
Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should be
able to meet new challenges posed by the technology and any other external and
internal factors.
For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer
confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system
has reached even to the remote corners of the country. This is one of the main reasons
of India's growth process.The government's regular policy for Indian bank since 1969
has paid rich dividends with the nationalization of 14 major private banks of India.Not
long ago, an account holder had to wait for hours at the bank counters for getting a draft
or for withdrawing his own money. Today, he has a choice. Gone are days when the
most efficient bank transferred money from one branch to other in two days. Now it is
simple as instant messaging or dial a pizza. Money have become the order of the day.
The first bank in India, though conservative, was established in 1786. From 1786 till
today, the journey of Indian Banking System can be segregated into three distinct
phases. They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks
Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
New phase of Indian Banking System with the advent of Indian Financial &
Banking Sector Reforms after 1991.
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8. The first bank in India, though conservative, was established in 1786. From 1786 till
today, the journey of Indian Banking System can be segregated into three distinct
phases. They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks
Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
New phase of Indian Banking System with the advent of Indian Financial &
Banking Sector Reforms after 1991.
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of
Hindustan and Bengal Bank. The East India Company established Bank of Bengal
(1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and
called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial
Bank of India was established which started as private shareholders banks, mostly
European shareholders. In 1865 Allahabad Bank was established and first time
exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters
at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of
Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of
India came in
1935.During the first phase the growth was very slow and banks
also experienced periodic failures between 1913 and 1948. There were approximately
1100 banks, mostly small. To streamline the functioning and activities of commercial
banks, the Government of India came up with The Banking Companies Act, 1949 which
was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act
No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the
supervision
of
banking
in
India
as
the
Central
Banking
Authority.
During those days public had lesser confidence in the banks. As an aftermath deposit
mobilization was slow. Abreast of it the savings bank facility provided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.
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9. Phase II
Government took major steps in this Indian Banking Sector Reform after
independence. In 1955, it nationalized Imperial Bank of India with extensive banking
facilities on a large scale especially in rural and semi-urban areas. It formed State Bank
of India to act as the principal agent of RBI and to handle banking transactions of the
Union and State Governments all over the country.Seven banks forming subsidiary of
State Bank of India was nationalized in 1960 on 19th July, 1969, major process of
nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs.
Indira Gandhi. 14 major commercial banks in the country were nationalized. Second
phase of nationalization Indian Banking Sector Reform was carried out in 1980 with
seven more banks. This step brought 80% of the banking segment in India under
Government ownership.
The following are the steps taken by the Government of India to Regulate
Banking Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalisation of State Bank of India.
1959: Nationalisation of SBI subsidiaries.
1961: Insurance cover extended to deposits.
1969: Nationalisation of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalisation of seven banks with deposits over 200 crore.
After the nationalization of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.
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10. Banking in the sunshine of Government ownership gave the public implicit faith and
immense confidence about the sustainability of these institutions.
Phase III
This phase has introduced many more products and facilities in the banking
sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a
committee was set up by his name which worked for the liberalisation of banking
practices.
The country is flooded with foreign banks and their ATM stations. Efforts are
being put to give a satisfactory service to customers. Phone banking and net banking is
introduced. The entire system became more convenient and swift. Time is given more
importance than money.The financial system of India has shown a great deal of
resilience. It is sheltered from any crisis triggered by any external macroeconomics
shock as other East Asian Countries suffered. This is all due to a flexible exchange rate
regime, the foreign reserves are high, the capital account is not yet fully convertible, and
banks and their customers have limited foreign exchange exposure.
Scheduled Commercial Banks In India
The commercial banking structure in India consists of:
Scheduled Commercial Banks in India
Unscheduled Banks in India
Scheduled Banks in India constitute those banks which have been included in the
Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only
those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a)
of the Act. As on 30th June, 1999, there were 300 scheduled banks in India having a
total network of 64,918 branches. The scheduled commercial banks in India comprise of
State bank of India and its associates (8), nationalized banks (19), foreign banks (45),
private sector banks (32), co-operative banks and regional rural
banks.
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11. "Scheduled banks in India" means the State Bank of India constituted under the
State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State
Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank
constituted under section 3 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank
being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934
(2 of 1934), but does not include a co-operative bank". "Non-scheduled bank in India"
means a banking company as defined in clause (c) of section 5 of the Banking
Regulation Act, 1949 (10 of 1949), which is not a scheduled bank".
Organizational Structure of Banks in India:
In India banks are classified in various categories according to differ rent criteria. The
following charts indicate the banking structure
Reserve Bank of India
Commercial Banks
Nationalized
Agricultural
Credit
Private
Urban
Credit
Co-operative Banks
Short-term
credit
EXIM
Development Banks
Long-term
credit
Industrial
Agricultural
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12. Broad Classification of Banks in India:
1) The RBI: The RBI is the supreme monetary and banking authority in the country
and has the responsibility to control the banking system in the country. It keeps
the reserves of all scheduled banks and hence is known as the ―Reserve Bank‖.
2) Public Sector Banks:
 State Bank of India and its Associates (8)
 Nationalized Banks (19)
 Regional Rural Banks Sponsored by Public Sector Banks (196)
3) Private Sector Banks:
 Old Generation Private Banks (22)
 Foreign New Generation Private Banks (8)
 Banks in India (40)
4) Co-operative Sector Banks:
 State Co-operative Banks
 Central Co-operative Banks
 Primary Agricultural Credit Societies
 Land Development Banks
 State Land Development Banks
5) Development Banks: Development Banks mostly provide long term finance for
setting up industries. They also provide short-term finance (for export and import
activities)
 Industrial Finance Co-operation of India (IFCI)
 Industrial Development of India (IDBI)
 Industrial Investment Bank of India (IIBI)
 Small Industries Development Bank of India (SIDBI)
 National Bank for Agriculture and Rural Development (NABARD)
 Export-Import Bank of India.
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13. Role of Banks:
Banks play a positive role in economic development of a country as repositories
of community‘s savings and as purveyors of credit. Indian Banking has aided the
economic development during the last fifty years in an effective way.
The banking sector has shown a remarkable responsiveness to the needs of
planned economy. It has brought about a considerable progress in its efforts at
deposit mobilization and has taken a number of measures in the recent past for
accelerating the rate of growth of deposits.
As recourse to this, the commercial banks opened branches in urban, semiurban and rural areas and have introduced a number of attractive schemes to
foster economic development.
The activities of commercial banking have growth in multi-directional ways as
well as multi-dimensional manner. Banks have been playing a catalytic role in
area development, backward area development, extended assistance to rural
development all along helping agriculture, industry, international trade in a
significant manner. In a way, commercial banks have emerged as key financial
agencies for rapid economic development.
By pooling the savings together; banks can make available funds to specialized
institutions which finance different sectors of the economy, needing capital for
various purposes, risks and durations.
By contributing to government securities, bonds and debentures of term-lending
institutions in the fields of agriculture, industries and now housing, banks are also
providing these institutions with an access to the common pool of savings
mobilized by them, to that extent relieving them of the responsibility of directly
approaching the saver.
This intermediation role of banks is particularly important in the early stages of
economic development and financial specification. A country like India, with
different regions at different stages of development, presents an interesting
spectrum of the evolving role of banks, in the matter of inter-mediation and
beyond.
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14. Mobilization of resources forms an integral part of the development process in
India. In this process of mobilization, banks are at a great advantage, chiefly
because of their network of branches in the country. And banks have to place
considerable reliance on the mobilization of deposits from the public to finance
development programmes.
Further, deposit mobilization by banks in India acquired greater significance in
their new role in economic development.Commercial banks provide short-term
and medium-term financial assistance. The short-term credit facilities are granted
for working capital requirements.
The medium-term loans are for the acquisition of land, construction of factory
premises and purchase of machinery and equipment. These loans are generally
granted for periods ranging from five to seven years.
They also establish letters of credit on behalf of their clients favoring suppliers of
raw materials/machinery (both Indian and foreign) which extend the banker‘s
assurance for payment and thus help their delivery.
Certain transaction, particularly those in contracts of sale of Government
Departments, may require guarantees being issued in lieu of security earnest
money deposits for release of advance money, supply of raw materials for
processing, full payment of bills on the assurance of the performance etc.
Commercial banks issue such guarantees also.
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15. PRODUCTS AND SERVICES OFFERED BY BANKS
Investment
Consumer
Banking
Commercial
Banking
Retail
Products
Banking
Banking
Private
Banking
Asset
Management
Pensions
Mortgages
Credit Cards
Broad Classification of Products in a bank:
The different products in a bank can be broadly classified into:
Retail Banking.
Trade Finance.
Treasury Operations.
Retail Banking and Trade finance operations are conducted at the branch level while
the wholesale banking operations, which cover treasury operations, are at the hand
office or a designated branch.
Retail Banking:
Deposits
Loans, Cash Credit and Overdraft
Negotiating for Loans and advances
Remittances
Book-Keeping (maintaining all accounting records)
Receiving all kinds of bonds valuable for safe keepi
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16. Trade Finance:
Issuing and confirming of letter of credit.
Drawing, accepting, discounting, buying, selling, collecting of bills of exchange,
promissory notes, drafts, bill of lading and other securities.
Treasury Operations:
Buying and selling of bullion. Foreign exchange
Acquiring, holding, underwriting and dealing in shares, debentures, etc.
Purchasing and selling of bonds and securities on behalf of constituents.
The banks can also act as an agent of the Government or local authority. They
insure, guarantee, underwrite, participate in managing and carrying out issue of shares,
debentures, etc.
Apart from the above-mentioned functions of the bank, the bank provides a whole lot
of other services like investment counseling for individuals, short-term funds
management and portfolio management for individuals and companies. It undertakes
the inward and outward remittances with reference to foreign exchange and collection of
varied types for the Government.
Following Services Can Be Availed On The Internet:
 Bill Payment
 Funds Transfer
 Special Promotions & Offers
 Ticket Booking
 Online loans and credit cards
 Online Shopping
 Online Tax payment
 Prepaid mobile recharge
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17. Banks will expand In overseas market
In order to sustain the business growth amid highly competitive market and
slowing Indian economy, banks are likely to expand in the overseas market. They will
try to tap emerging opportunities by expanding into newer markets such as Africa,
former Soviet region and other South East Asian countries, in which India has
maintained good trade relations. They can set up captive operations or expand through
inorganic means by undergoing M&A (mergers and acquisitions) with banks in foreign
countries.
Passage of 'Banking Laws (Amendment) Bill' aimed at attracting more foreign
investments
With an aim to reform and strengthen India's banking sector, the LokSabha
passed the 'Banking Amendment Bill' in Dec 2012. Once, the bill is passed by
RajyaSabha as well, it will pave way for RBI to issue new banking licenses to private
sector and attract more foreign investments in the sector.
The Bill also proposes to enhance the voting rights of investors in case of both
public sector and private sector banks from existing 1% to 10% of public sector banks
and from 10% to 26% of private sector banks. This move will attract more foreign
investment in the sector
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18. MAJOR RECOMMENDATIONS ON BANKING SECTOR REFORMS:
Strengthening Banking System
Capital adequacy requirements should take into account market risks in addition
to the
Credit risks.
In the next three years the entire portfolio of government securities should be
marked to market and the schedule for the same announced at the earliest (since
announced in the monetary and credit policy for the first half of 1998-99);
government and other approved securities which are now subject to a zero risk
weight, should have a 5 per cent weight for market risk.
Risk weight on a government guaranteed advance should be the same as for
other advances. This should be made prospective from the time the new
prescription is put in place.
Foreign exchange open credit limit risks should be integrated into the calculation
of risk weighted assets and should carry a 100 per cent risk weight.
Minimum capital to risk assets ratio (CRAR) be increased from the existing 8 per
cent to 10 per cent; an intermediate minimum target of 9 per cent be achieved by
2000 and the ratio of 10 per cent by 2002; RBI to be empowered to raise this
further for individual banks if the risk profile warrants such an increase. Individual
banks' shortfalls in the CRAR are treated on the same line as adopted for reserve
requirements, viz. uniformity across weak and strong banks. There should be
penal provisions for banks that do not maintain CRAR.
Public Sector Banks in a position to access the capital market at home or abroad
be encouraged, as subscription to bank capital funds cannot be regarded as a
priority claim on budgetary resources.
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19. Systems and Methods in Banks
There should be an independent loan review mechanism especially for large
borrowal accounts and systems to identify potential NPAs. Banks may evolve a
filtering mechanism by stipulating in-house prudential limits beyond which
exposures on single/group borrowers are taken keeping in view their risk profile
as revealed through credit rating and other relevant factors.
Banks and FIs should have a system of recruiting skilled manpower from the
open market.
Public sector banks should be given flexibility to determined managerial
remuneration levels taking into account market trends.
There may be need to redefine the scope of external vigilance and investigation
agencies with regard to banking business.
There is need to develop information and control system in several areas like
better tracking of spreads, costs and NPSs for higher profitability, , accurate and
timely information for strategic decision to Identify and promote profitable
products and customers, risk and asset-liability management; and efficient
treasury management.
BASEL II ACCORD
Bank capital framework sponsored by the world's central banks designed to
promote uniformity, make regulatory capital more risk sensitive, and promote enhanced
risk management among large, internationally active banking organizations. The
International Capital Accord, as it is called, will be fully effective by January 2008 for
banks active in international markets. Other banks can choose to "opt in," or they can
continue to follow the minimum capital guidelines in the original Basel Accord, finalized
in 1988. The revised accord (Basel II) completely overhauls the 1988 Basel Accord and
is based on three mutually supporting concepts, or "pillars," of capital adequacy. The
first of these pillars is an explicitly defined regulatory capital requirement, a minimum
capital-to-asset ratio equal to at least 8% of risk-weighted assets. Second, bank
supervisory agencies, such as the Comptroller of the Currency, have authority to adjust
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20. capital levels for individual banks above the 8% minimum when necessary. The third
supporting pillar calls upon market discipline to supplement reviews by banking
agencies. Basel II is the second of the Basel Accords, which are recommendations on
banking laws and regulations issued by the Basel Committee on Banking Supervision.
The purpose of Basel II, which was initially published in June 2004, is to create an
international standard that banking regulators can use when creating regulations about
how much capital banks need to put aside to guard against the types of financial and
operational risks banks face. Advocates of Basel II believe that such an international
standard can help protect the international financial system from the types of problems
that might arise should a major bank or a series of banks collapse. In practice, Basel II
attempts to accomplish this by setting up rigorous risk and capital management
requirements designed to ensure that a bank holds capital reserves appropriate to the
risk the bank exposes itself to through its lending and investment practices. Generally
speaking, these rules mean that the greater risk to which the bank is exposed, the
greater the amount of capital the bank needs to hold to safeguard its solvency and
overall economic stability.
The final version aims at:
1. ensuring that capital allocation is more risk sensitive;
2. Separating operational risk from credit risk, and quantifying both;
3. Attempting to align economic and regulatory capital more closely to reduce the scope
for regulatory arbitrage.
While the final accord has largely addressed the regulatory arbitrage issue, there are
still areas where regulatory capital requirements will diverge from the economic. Basel II
has largely left unchanged the question of how to actually define bank capital, which
diverges from accounting equity in important respects. The Basel I definition, as
modified up to the present, remains in place.
The Accord in operation Basel II uses a "three pillars" concept – (1) minimum capital
requirements (addressingrisk), (2) supervisory review and (3) market discipline – to
promote greater stability inthe financial system.
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21. The Three Pillars of Basel II
The Basel I accord dealt with only parts of each of these pillars. For example:
with respect to the first Basel II pillar, only one risk, credit risk, was dealt with in a simple
manner while market risk was an afterthought; operational risk was not dealt with at all.
The First Pillar
The first pillar deals with maintenance of regulatory capital calculated for three
major components of risk that a bank faces: credit risk, operational risk and market risk.
Other risks are not considered fully quantifiable at this stage. The credit risk component
can be calculated in three different ways of varying degree of sophistication, namely
standardized approach, Foundation IRB and Advanced IRB. IRB stands for "Internal
Rating-Based Approach". For operational risk, there are three different approaches basic indicator approach or BIA, standardized approach or TSA, and advanced
measurement approach or AMA. For market risk the preferred approach is VaR (value
at risk). As the Basel 2 recommendations are phased in by the banking industry it will
move from standardised requirements to more refined and specific requirements that
have been developed for each risk category by each individual bank. The upside for
banks that do develop their own bespoke risk measurement systems is that they will be
rewarded with potentially lower risk capital requirements. In future there will be closer
links between the concepts of economic profit and regulatory capital.
Credit Risk can be calculated by using one of three approaches
1. Standardized Approach
2. Foundation IRB (Internal Ratings Based) Approach
3. Advanced IRB Approach
The standardized approach sets out specific risk weights for certain types of
credit risk. The standard risk weight categories are used under Basel 1 and are 0% for
short term government bonds, 20% for exposures to OECD Banks, 50% for residential
mortgages and 100% weighting on commercial loans. A new 150% rating comes in for
borrowers with poor credit ratings. The minimum capital requirement( the percentage of
risk weighted assets to be held as capital) remains at 8%. For those Banks that decide
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22. to adopt the standardized ratings approach they will be forced to rely on the ratings
generated by external agencies. Certain Banks are developing the IRB approach as a
result.
The Second Pillar
The second pillar deals with the regulatory response to the first pillar, giving
regulators much improved 'tools' over those available to them under Basel I. It also
provides a framework for dealing with all the other risks a bank may face, such as
systemic risk, pension risk, concentration risk, strategic risk, reputation risk, liquidity risk
and legal risk, which the accord combines under the title of residual risk. It gives banks
a power to review their risk management system.
The Third Pillar
The third pillar greatly increases the disclosures that the bank must make. This is
designed to allow the market to have a better picture of the overall risk position of the
bank and to allow the counterparties of the bank to price and deal appropriately. The
new Basel Accord has its foundation on three mutually reinforcing pillars that allow
banks and bank supervisors to evaluate properly the various risks that banks face
andrealign regulatory capital more closely with underlying risks. The first pillar is
compatible with the credit risk, market risk and operational risk. The regulatory capital
will be focused on these three risks. The second pillar gives the bank responsibility to
exercise the best ways to manage the risk specific to that bank. Concurrently, it also
casts responsibility on the supervisors to review and validate banks‘ risk measurement
models. The third pillar on market discipline is used to leverage the influence that other
market players can bring. This is aimed at improving the transparency in banks and
improves reporting.
22

23. COMPANY PROFILE
HISTORY:
The origin of the State Bank of India goes back to the first decade of the nineteenth
century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806.
Three years later, the bank received its charter and was re-designed as the Bank of
Bengal (2 January 1809). A unique institution, it was the first joint-stock bank of British
India sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840)
and the Bank of Madras (1 July 1843) followed the Bank of Bengal. These three banks
remained at the apex of modern banking in India till their amalgamation as the Imperial
Bank of India on 27 January 1921.
In 1951, when the First Five Year Plan was launched, the development of rural India
was given the highest priority. The commercial banks of the country including the
Imperial Bank of India had till then confined their operations to the urban sector and
were not equipped to respond to the emergent needs of economic regeneration of the
rural areas. In order, therefore, to serve the economy in general and the rural sector in
particular, the All India Rural Credit Survey Committee recommended the creation of a
state-partnered and state-sponsored bank by taking over the Imperial Bank of India, and
integrating with it, the former state-owned or state-associate banks. An act was
accordingly passed in Parliament in May 1955 and the State Bank of India was
constituted on 1 July 1955. More than a quarter of the resources of the Indian banking
system thus passed under the direct control of the State. Later, the State Bank of India
(Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take
over eight former State-associated banks as its subsidiaries (later named Associates).
23

24. The State Bank of India was thus born with a new sense of social purpose aided by the
480 offices comprising branches, sub offices and three Local Head Offices inherited
from the Imperial Bank. The concept of banking as mere repositories of the community's
savings and lenders to creditworthy parties was soon to give way to the concept of
purposeful banking subserving the growing and diversified financial needs of planned
economic development. The State Bank of India was destined to act as the pacesetter
in this respect and lead the Indian banking system into the exciting field of national
development.
VISION:
My SBI, My Customer first, My SBI: First in customer satisfaction.
MISSION:
We will be prompt, polite and proactive with our customers.
We will speak the language of young India.
We will create products and services that help our customers achieve their goals.
We will go beyond the call of duty to make our customers feel valued.
We will be of service even in the remotest part of our country.
We will offer excellence in services to those abroad as much as we do to those in
India.
We will imbibe state of the art technology to drive excellence.
24

25. CORPORATION BANK
HISTORY:
Nationalized in 1980, Corporation Bank was the forerunner when it came to
evolving and adapting to the financial sector reforms. In 1997, it became the Second
Public Sector Bank in the country to enter capital market, the IPO of which was oversubscribed by 13 times. the Bank has many " firsts " to its credit - Cash Management
Services, Gold Banking, m-Commerce, " Online " approvals for Educational loans,
100% CBS Compliance and more recently, its pioneering efforts to take the technology
to the rural masses in remotest villages through low-cost branchless banking - Business
Correspondent model. All of which symbolize Bank's unswerved (constant) commitment
to its customers to provide convenience banking.
At Corporation Bank, what motivates us is the passion to excel in banking by
maintaining highest standards of service to our customers, backed by innovative
products and services which makes us one of the leading Public Sector Banks in the
country, catering to a wide range of customers - from individuals to corporate clients.
―This is ‗Swadeshism‘ pure and simple and every lover of the country is expected
to come forward and co-operate in achieving this end in view‖ In 1939, the Bank‘s name
changed from Canara Banking Corporation (Udipi) Ltd., to ―Canara Banking Corporation
Ltd.,‖
and
strongly
put
forth
its
vision
with
the
motto-
― SarveJanahSukhinoBhavantu” which means “Prosperity to All. ‖ The second
change in the name of the Bank occurred in 1972, from ‗Canara Banking Corporation
Ltd.‘ to ‗Corporation Bank Limited.‘ and finally ‗Corporation Bank‘ following its
nationalization on 15th April, 1980.
25

26. A Big Leap to the Big League: As on 30th September 2013, the Total Business of the
Bank was Rs.2,94,477crore. The Total Deposit stood at Rs.1,73,410crore and the Total
Advances were at Rs.1,21,067 crore. The Networth rose to Rs.9,959crore.
Growing Bigger. Getting Closer: Presently, the Bank has a network of 1775 fully
automated CBS branches, 1753 ATMs and 3574 Branchless Banking Units across the
country. The Bank has Representative Offices at Dubai and at Hong Kong.
Corporate Vision: ―The Most Preferred Bank with Global Standards‖
Corporate Mission :
To become a provider of World - Class Financial Services,
To meet Customer expectations through Innovation and Technological Initiatives
To maintain leadership in inclusive banking
To enhance stakeholders' value
To fulfill national and social obligations
To create an environment, intellectually satisfying and professionally rewarding to
the employees
To emerge as a role model for ethical values and Good Corporate Governance
"The Primary object in forming ‗Corporation‘ is not only to cultivate habits of thrift
amongst all classes of people, without distinction of caste or creed, but also habits of
co-operation amongst all classes‖.
26

27. PUNJAB AND SIND
HISTORY
It was in the year 1908, when a humble idea to uplift the poorest of poor of the land
culminated in the birth of Punjab & Sind Bank with the far-sighted vision of luminaries
like BhaiVir Singh, Sir Sunder Singh Majitha and SardarTarlochan Singh. They enjoyed
the highest respect with the people of Punjab. The bank was founded on the principle of
social commitment to help the weaker section of the society in their economic
endeavours to raise their standard of life. Decades have gone by, even today Punjab &
Sind Bank stands committed to honor the social commitments of the founding fathers.
Punjab & Sind Bank (P&SB) is a major Public Sector bank in Northern India and
working 100% on CBS platform. The banks government shareholding is 79.86%. Of its
1200 branches and offices spread throughout India, almost 485 are in Punjab state. The
bank's corporate headquarters is in New Delhi. Its net profit is 339.22 crores and net
NPA is 2.14% for the year ending 2012-13. The banks net profit for the quarter ending
June 2013 is 121.71 crores. Total business of the bank is 1,22,485 crores. Business per
employee is 14.35 crore& business per branch is 108.49 crores. Bank has registered a
tremendous growth rate in Housing, Auto & Retail loan scheme. Under DBT (Direct
Benefit Scheme) bank had opened 81,204 accounts in 43 districts. The bank has
recently started two variants of Rupay cards- Rupay debit card and RupayKissan credit
cards. After fully CBS environment, bank has been continiously launching differentdifferent products. Today, Punjab & Sind Bank providing Internet banking, Mobile
banking, tele banking and sms alert facility to his customers and giving highest rate of
interest on fixed deposits for senior citizens.Punjab & Sind Bank also providing a variety
27

28. of saving accounts like Basic saving account for students, pension saving account for
pensioners, saving general accounts and saving premier account. In current account,
the bank providing two types account- current account general and current account
premier. Recently, the bank has opened a HUB in Chandigarh city for housing loan
proposals. Its tag line is "Where service is a way of life".
28

29. CHAPTER-4
RESEARCH METHODOLOGY
OBJECTIVE OF THE STUDY:-
To study the strength of using CAMELS framework as a tool of Performance
evaluation for public sector banks
To describe the CAMELS model of ranking banking institutions, so as to analyze
the performance of 3 Public sectors bank- STATE BANK OF INDIA,
CORPORATION BANK, PUNJAB AND SIND BANK
Data Collection

Secondary Data: Secondary data on the subject was collected from journals, website
and other references.
RESEARCH METHODOLOGY:
As long as the methodology is concerned, I have made use of a framework
called CAMELS FRAMEWORK. There are so many models of evaluating the
performance of the banks, but I have chosen the CAMELS Model for this purpose. I
have gone through several books, journals and websites and found it the best model
because it measures the performance of the banks from each parameter i.e. Capital,
Assets, Management, Earnings, Liquidity and Sensitivity to Market risks. CAMELS
evaluate banks on the following six parameters:-
CAPITAL ADEQUACY:
It is important for a bank to maintain depositors‘ confidence and preventing the bank
from going bankrupt. It reflects the overall financial condition of banks and also the
ability of management to meet the need of additional capital. The following ratios
measure capital adequacy:
29

30. Capital Adequacy Ratio (CAR): The capital adequacy ratio is developed to ensure
that banks can absorb a reasonable level of losses occurred due to operational
losses and determine the capacity of the bank in meeting the losses. As per the
latest RBI norms, the banks should have a CAR of 9 per cent.
Debt-Equity Ratio (D/E): This ratio indicates the degree of leverage of a bank. It
indicates how much of the bank business is financed through debt and how much
through equity.
Advance to Assets Ratio (Adv/Ast): This is the ratio indicates a bank‘s
aggressiveness in lending which ultimately results in better profitability.
Government Securities to Total Investments (G-sec/Inv): It is an important
indicator showing the risk-taking ability of the bank. It is a bank‘s strategy to have
high profits, high risk or low profits, low risk.
ASSET QUALITY (GNPA):
The quality of assets is an important parameter to gauge the strength of bank. The
prime motto behind measuring the assets quality is to ascertain the component of nonperforming assets as a percentage of the total assets. The ratios necessary to assess
the assets quality are:
Net NPAs to Total Assets (NNPAs/TA): This ratio discloses the efficiency of
bank in assessing the credit risk and, to an extent, recovering the debts.
Net NPAs to Net Advances (NNPAs/NA): It is the most standard measure of
assets quality measuring the net non-performing assets as a percentage to net
advances.
Total Investments to Total Assets (TI/TA): It indicates the extent of
deployment of assets in investment as against advances.
Percentage Change in NPAs: This measure tracks the movement in Net NPAs
over previous year. The higher the reduction in the Net NPA level, the better it for
the bank
30

31. MANAGEMENT SOUNDNESS (MGNT): Management efficiency is another important
element of the CAMEL Model. The ratio in this segment involves subjective analysis to
measure the efficiency and effectiveness of management. The ratios used to evaluate
management efficiency are described as:
Total Advances to Total Deposits (TA/TD): This ratio measures the efficiency
and ability of the bank‘s management in converting the deposits available with
the bank excluding other funds like equity capital, etc. into high earning
advances.
Profit per Employee (PPE): This shows the surplus earned per employee. It is
known by dividing the profit after tax earned by the bank by the total number of
employees.
Business per Employee (BPE): Business per employee shows the productivity
of human force of bank. It is used as a tool to measure the efficiency of
employees of a bank in generating business for the bank.
Return on Net worth (RONW): It is a measure of the profitability of a bank.
Here, PAT is expressed as a percentage of Average Net Worth.
EARNINGS & PROFITABILITY (ROA): The quality of earnings is a very important
criterion that determines the ability of a bank to earn consistently. It basically determines
the profitability of bank and explains its sustainability and growth in earnings in future.
The following ratios explain the quality of income generation.
Operating Profit to Average Working Funds (OP/AWF): This ratio indicates
how much a bank can earn profit from its operations for every rupee spent in the
form of working fund.
Percentage Growth in Net Profit (PAT Growth): It is the percentage change in
net profit over the previous year.
Net Profit to Average Assets (PAT/AA): This ratio measures return on assets
employed or the efficiency in utilization of assets.
31

32. LIQUIDITY (LQD):Risk of liquidity is curse to the image of bank. Bank has to take a
proper care to hedge the liquidity risk; at the same time ensuring good percentage of
funds are invested in high return generating securities, so that it is in a position to
generate profit with provision liquidity to the depositors. The following ratios are used to
measure the liquidity:
Liquid Assets to Demand Deposits (LA/DD): This ratio measures the ability of
bank to meet the demand from depositors in a particular year. To offer higher
liquidity for them, bank has to invest these funds in highly liquid form.
Liquid Assets to Total Deposits (LA/TD): This ratio measures the liquidity
available to the total deposits of the bank.
Liquid Assets to Total Assets (LA/TA): It measures the overall liquidity position
of the bank. The liquid asset includes cash in hand, balance with institutions and
money at call and short notice. The total assets include the revaluation of all the
assets.
G-Sec to Total Assets (G-Sec/TA): It measures the risk involved in the assets.
This ratio measures the Government securities as proportionate to total assets.
Approved Securities to Total Assets (AS/TA): This is arrived by dividing the
total amount invested in Approved securities by Total Assets.
SENSITIVITY - SENSITIVITY TO MARKET RISK, ESPECIALLY INTEREST RATE
RISK
Sensitivity to market risk, the "S" in CAMELS is a complex and evolving measurement
area. It was added in 1995 by Federal Reserve and the OCC primarily to
address interest rate risk, the sensitivity of all loans and deposits to relatively abrupt and
unexpected shifts in interest rates. In 1995 they were also interested in banks‘ lending
to farmers, and the sensitivity of farmer‘s ability to make loan repayments as specific
crop prices fluctuate. Unlike classic ratio analysis, which most of CAMELS system was
based on, which relies on relatively certain, historical, audited financial statements,
this forward look approach involved examining various hypothetical future price and rate
32

33. scenarios and then modeling their effects. The variability in the approach is significant.
In June 1996 a Joint Agency Policy Statement was issued by the OCC, Treasury, Fed
and FDIC defining interest rate risk as the exposure of a bank‘s financial condition to
adverse movements in interest rates resulting from the following:
Repricing or maturity mismatch risk - differences in the maturity or timing of
coupon adjustments of bank assets, liabilities and off-balance-sheet instruments
Yield curve risk - changes in the slope of the yield curve
Basis risk - imperfect correlations in the adjustment of rates earned and paid on
different instruments with otherwise similar repricing characteristics (e.g. 3 month
Treasury bill versus 3 month LIBOR)
Option risk - interest rate related options embedded in bank products
The CAMELS system failed to provide early detection and prevention of the
devastating financial crisis of 2007–2008. Informed and motivated by the large bank
failures, and the horrific ensuing crisis, in June 2009 the FDIC announced a significantly
expanded Forward-Looking Supervision approach, and provided extensive training to its
front line bank examiners. These are the employees of the Division of Supervision and
Consumer Protection (DSC) who visit the banks, apply the official guidelines to practical
situations, make assessments, and assign the CAMELS ratings on behalf of the FDIC.
Since FDIC is a limited insurance pool they are highly concerned with any rise in bank
failure rates. In the same timeframe various other regulators began official stress testing
of large banks, with the results often publicly disclosed. SeeStress test (financial), List of
bank stress tests, List of systemically important banks.Sensitivity to market risk can
cover ever increasing territory. What began as an assessment of interest rate and farm
commodity price risk exposures has grown exponentially over time. Forward-looking
Supervision and sensitivity to market risk can include:
 Assessing, monitoring, and management of any credit concentrations, for
example lending to specific groups such as:
established commercial real estate lending, or lending for acquisition,
development, and construction
33

34. agricultural lending
energy sector lending
medical lending
credit card lending
 Exposure to market based price changes, including:
foreign exchange
commodities
equities
derivatives, including interest rate, credit default and other types of swaps
LIMITATIONS OF THE STUDY:
The study was limited to three banks.
Time and resource constrains.
The method discussed pertains only to banks though it can be used for
performance evaluation of other financial institutions.
The study was completely done on the basis of ratios calculated from the
balancesheets.
It has not been possible to get a personal interview with the top management
employees of all banks under study.
34

35. CHAPTER-5
DATA ANALYSIS AND PRESENTATION
Now each parameter will be taken separately & discussed in detail.
(A)CAPITAL ADEQUACY:
In accordance with Basel III norms, Indian banks will have to maintain their
capital adequacy ratio at nine percent as against the minimum recommended
requirement of eight per cent.A measure of a bank's capital. It is expressed as a
percentage of a bank's risk weighted credit exposures. This ratio is used to protect
depositors and promote the stability and efficiency of financial systems around the
world. 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. Also known as "Capital to Risk Weighted Assets Ratio (CRAR)
35

36. THE CAPITAL ADEQUACY RATIO FOR 3 PUBLIC SECTOR BANKS IN INDIA
Particular
2010
2011
2012
2013
State bank of India
13.39%
13.25%
13.16%
11.85%
Corporation bank
15.37%
14.11%
13.12%
12.33%
Punjab and Sind bank
13.10%
12.94%
13.26%
12.91%
INTERPRETATION: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. This ratio is propounded to ensure that banks can adopt a reasonable
level of losses arising from operations and to ascertain bank‘s loss bearing capacity.
Higher the ratio means banks are stronger and the investors are more protected. Latest
RBI guideline for banks in India is to maintain a CRAR of 9%. Therefore ranking for
CRAR is I- Corporation bank, II – Punjab National Bank, III – State Bank Of India. The
overall percentage for these banks are State Bank Of India- 12.91, Corporation Bank –
13.73 , Punjab And Sind bank – 13.05.
36

37. (B)ASSET QUALITY:
Net NPAs to Total Assets (NNPAs/TA):
Particular
2010
2011
2012
2013
STATE BANK OFINDIA
.531
.653
1.015
1.217
CORPORATION BANK
.177
.277
.779
.729
PUNJAB AND SIND BANK
.205
.345
.751
.137
INTERPRETATION:
This ratio indicates the efficiency of bank in ascertaining the risk arising from
credit andrecovering the debts. Under this ratio, the net NPAs are expressed as a
percentage of totalassets. Lower the ratio reflects the better is the quality of advances
and vice versa. In this the rating shall be as I – Corporation Bank, II – Punjab national
Bank, III – State Bank of India.
37

38. MANAGEMENT SOUNDNESS (MGNT) :
Total Advances to Total Deposits (TA/TD):
Particular
2010
2011
2012
2013
STATE BANK OFINDIA
.785
.824
.831
.869
CORPORATION BANK
.573
.743
.737
.715
PUNJAB AND SIND BANK
.664
.713
.731
.728
INTERPRETATION:
This ratio assesses the efficiency of the bank‘s management in applying the
deposits(including receivables) available excluding other funds like equity capital, etc.
intoadvances with high yields. Savings deposits, demand deposits, term deposits and
deposits of other banks are included in total deposits. Ranking shall be as I – State
Bank Of India, II – Punjab and Sind bank.
EARNINGS & PROFITABILITY (ROA):
Net Profit to Average Assets (PAT/AA):
Particular
2010
2011
2012
2013
STATE BANK OFINDIA
.005
.009
.008
.007
CORPORATION BANK
.012
.011
.009
.008
PUNJAB AND SIND BANK
1.044
.840
.638
.442
INTERPRETATION:
This ratio reflects the return on assets employed. It is calculated by dividing the
net Profits with Average assets of the bank. Higher the ratio reflects better earning
potential and vice versa. In this rating shall be as I – Corporation bank, II – Punjab And
Sind Bank, III – State Bank of India.
38

39. LIQUIDITY (LQD) :
Liquid Assets to Demand Deposits (LA/DD):
Particular
2010
2011
2012
2013
STATE BANK OFINDIA
.0391
.0327
.0618
.0667
CORPORATION BANK
.009
.007
.007
.010
PUNJAB AND SIND BANK
.183
.769
.835
.179
INTERPRETATION:
This ratio reflects the ability of bank to honor the demand from depositors during
a particular year. In order to provide higher liquidity for depositors, bank has to invest
these funds in highly liquid form.
OVERALL RATING:
Bank
C
A
M
E
L
MEAN
RANK
STATE BANK OFINDIA
12.91
0.854
8.275
.007
.138
4.438
I
CORPORATION BANK
13.73
0.491
6.92
.037
.008
4.237
III
SIND 13.05
0.704
7.09
.741
.492
4.415
II
PUNJAB
AND
BANK
Overall rating of CAMEL shows the good performance as Good (Up to 8.40).
39

40. CHAPTER-6
SUMMARY AND CONCLUSION
SUMMARY:
CAMEL model is important tool to assess the relative financial strength of a bank
and tosuggest suitable measures to improve its weaknesses. In the present study
CAMEL ranking approach is used to assess relative performance of Indian public sector
banks. The study observed that there is significant difference between the mean values
ofCAMEL ratios of 3 public sector banks. It is found that during the year 2010 TO 2013
Capital adequacy and Earnings quality of Corporation Bank and Punjab And Sind bank
was more than State Bank Of India while Assets quality, Management Efficiency of SBI
is more than the Corporation Bank and Punjab and Sind bank whereas Liquidity position
of corporation bank was far better than SBI and P&S bank. Similarly State Bank of India
should take necessary steps to improve its liquidity position and Capital adequacy. The
present study does not relate to Private Sector Banks and Foreign Banks.
SBI: The Capital Adequacy Ratio SBI Bank stands at 12.92%, against RBI stipulation of
9%, with Tier1 capital at 9.49% and Tier II at 3.43%. The CAR remains strong and the
strength comes from the following three factors:
Robust internal generation and plough back of profits of Rs.10,890 crores;
Capital infusion of Rs.3004 crores by the Government; and
Continuous and on-going efforts at optimizing capital
The deterioration has occurred in the mid-corporate space in sectors under
stress in the economy namely Paper and Plastics, Iron and Steel, Textiles, Engineering
Goods, Transport, etc. Gross NPAs are currently at 4.75% with Net NPA level of 2.10%
During the year the Reserve Bank of India reduced Cash Reserve Ratio by 0.75% and
Statutory Liquidity Ratio by 1%. The Bank therefore had ample liquidity during the
year.The Bank also used Mutual fund schemes for liquidity management and higher
returns. The Bank made a profit of about Rs. 600 Crores from Equity and Mutual Funds.
40

41. CORPORATION BANK:
Therehave also been concerns on asset quality across the banking industry
because of the indirect impact of trade and demand slowdown and higher interest rates
on repayment capacity of the clients.The Bank‘s CRAR under Basel II stood at a
comfortable level of12.33% despite offering high interest rates, banks were not able to
mobilize the desired funds through deposits, creating pressure on liquidity. There have
also been concerns on asset quality across the banking industry because of the indirect
impact of trade and demand slowdown and higher interest rates on repayment capacity
of the clients.
PUNJAB AND SIND BANK:
Based on Basel II norms, the Bank has adopted Standardized Approach
forCredit Risk, Modified Duration approach for Market Risk and Basic Indicator
approach for Operational Risk for computing the capital charge.Bank has geared up to
maintain time schedule for moving towardsadvanced approaches under BASEL II as
suggested by RBI. The performance of the Bank under recovery of NPAs during the
year continued to be good. The aggressive and focused efforts could result in the total
recovery of over Rs.529.01 Crore including recovery of Rs.202.93 Crore in Technically
Written Off accounts. The performance of the Bank under recovery of NPAs during the
year continued to be good. The Liquidity Management Framework is well established,
which safeguards the ability of the Bank to meet all payment obligations when they
come due. It is designed to identify measure and manage the liquidity risk position of
the Bank.
41

42. CONCLUSION:
Capital adequacy ultimately determines how well financial institutions can cope
with shocks to their balance sheets. Thus, it is useful to track capital-adequacy
ratios that take into account the most important financial risks—foreign
exchange, credit, and interest rate risks—by assigning risk weightings to the
institution‘s assets. This ratio is used to protect depositors and promote the
stability and efficiency of financial systems around the world.
With this backdrop, the asset quality is gauged in relation to the level and
severity of
non-performing assets, adequacy of
provisions, recoveries,
distribution of assets etc. Popular indicators include nonperforming loans to
advances, loan default to total advances, and recoveries to loan default ratios.
The solvency of financial institutions typically is at risk when their assets become
impaired, so it is important to monitor indicators of the quality of their assets in
terms of overexposure to specific risks, trends in nonperforming loans, and the
health and profitability of bank borrowers— especially the corporate sector.
Share of bank assets in the aggregate financial sector assets: In most emerging
markets, banking sector assets comprise well over 80 per cent of total financial
sector assets, whereas these figures are much lower in the developed
economies. However, the dominant role of banks in financial intermediation in
emerging economies and particularly in India will continue in the medium-term;
and the banks will continue to be ―special‖ for a long time. In this regard, it is
useful to emphasise the dominance of banks in the developing countries in
promoting
non-bank
financial
intermediaries
and
services
including
in
development of debt-markets. Even where role of banks is apparently
diminishing in emerging markets, substantively, they continue to play a leading
role in non-banking financing activities, including the development of financial
markets. Sound management is one of the most important factors behind
financial institutions‘ performance.
42

43. Indicators of quality of management, however, are primarily applicable to
individual institutions, and cannot be easily aggregated across the sector.
Furthermore, given the qualitative nature of management, it is difficult to judge its
soundness just by looking at financial accounts of the banks. It is primarily a
qualitative factor applicable to individual institutions. Several indicators, however,
can jointly serve—as, for instance, efficiency measures do—as an indicator of
management soundness. Strong earnings and profitability profile of banks
reflects the ability to support present and future operations. More specifically, this
determines the capacity to absorb losses, finance its expansion, pay dividends to
its shareholders, and build up an adequate level of capital.
An adequate liquidity position refers to a situation, where institution can obtain
sufficient funds, either by increasing liabilities or by converting its assets quickly
at a reasonable cost. It is, therefore, generally assessed in terms of overall
assets and liability management, as mismatching gives rise to liquidity risk.
43

44. CHAPTER-7
SUGGESTIONS OR RECOMMENDATIONS
RECOMMENDATIONS:
The banks should adapt themselves quickly to the changing norms.
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 abovethe risk.
SUGGESTIONS:
Research on 3 PUBLIC SECTOR 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.
44

45. BIBLIOGRAPHY
Websites Visited
http://www.moneycontrol.com/india/stockpricequote/bankspublicsector/corporationbank/
CB
http://www.moneycontrol.com/financials/punjabsindbank/ratios/PSB#PSB
http://www.moneycontrol.com/india/stockpricequote/bankspublicsector/statebankindia/S
BI
http://www.moneycontrol.com/financials/punjabsindbank/profit-loss/PSB#PSB
http://www.answers.com/topic/basel-ii
World Journal of Social SciencesVol.3. No. 3. May 2013 Issue. Pp. 71 – 88
https://www.psbindia.com/downloads/Annual_Report_2009_2010.pdf
http://www.moneycontrol.com/annual-report/statebankindia/directors-report/SBI#SBI
www.businessdictionary.com
45

46. APPENDIX
Consolidated Balance Sheet of ------------------- in Rs. Cr. ------------------State Bank of India
Mar '13
Mar '12
Mar '11
Mar '10
Mar '09
12 mths
12 mths
12 mths
12 mths
12 mths
684.03
671.04
635.00
634.88
634.88
684.03
671.04
635.00
634.88
634.88
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Capital and Liabilities:
Total
Share
Capital
Equity Share
Capital
Share
Application
Money
Preference
Share Capital
Init.
Contribution
Settler
Preference
Share
46

47. Application
Money
Employee
0.00
0.00
0.00
0.00
0.00
124,348.99
105,558.97
82,836.25
82,500.70
71,755.51
0.00
0.00
0.00
0.00
0.00
Net Worth
125,033.02
106,230.01
83,471.25
83,135.58
72,390.39
Deposits
1,627,402.61 1,414,689.40 1,255,562.48 1,116,464.56 1,011,988.33
Borrowings
203,723.20
Total Debt
1,831,125.81 1,572,680.76 1,398,033.25 1,238,539.13 1,076,579.97
Stock Opiton
Reserves
Revaluation
Reserves
Minority
157,991.36
142,470.77
122,074.57
64,591.64
4,253.86
3,725.67
2,977.17
2,631.27
2,228.27
0.00
0.00
0.00
0.00
0.00
Joint 0.00
0.00
0.00
0.00
0.00
146,994.36
163,294.96
125,837.97
153,627.10
Interest
Policy Holders
Funds
Group Share
in
Venture
Other
Liabilities
& 172,745.65
Provisions
Total
Liabilities
2,133,158.34 1,829,630.80 1,647,776.63 1,450,143.95 1,304,825.73
47

48. Mar '13
Mar '12
Mar '11
Mar '10
Mar '09
12 mths
12 mths
12 mths
12 mths
12 mths
79,199.21
119,349.83
82,195.58
74,161.07
48,391.62
35,977.62
39,653.42
51,100.63
Assets
Cash
&
Balances with 89,574.03
RBI
Balance
with
Banks, Money 55,653.70
at Call
Advances
1,392,608.03 1,163,670.21 1,006,401.55 869,501.64
750,362.38
Investments 519,393.19
460,949.14
419,066.45
402,754.13
372,231.45
Gross Block
9,369.93
19,619.76
17,543.26
15,886.95
14,063.96
0.00
12,593.09
11,402.13
10,359.09
9,127.29
9,369.93
7,026.67
6,141.13
5,527.86
4,936.67
0.00
381.30
345.70
486.03
286.81
69,803.58
60,615.96
50,025.30
51,746.73
0.00
0.00
0.00
0.00
Accumulated
Depreciation
Net Block
Capital Work
In Progress
Other Assets 66,559.46
Minority
Interest
0.00
48

49. Group Share
in
Joint 0.00
0.00
0.00
0.00
0.00
Venture
Total Assets 2,133,158.34 1,829,421.73 1,647,898.24 1,450,143.96 1,304,825.74
Contingent
906,599.60
Liabilities
Bills
for
collection
Book
Value
(Rs)
776,754.01
687,540.57
556,675.30
734,943.70
230,090.67
240,811.53
234,065.24
197,108.13
175,677.61
1,827.89
1,583.05
1,314.51
1,309.46
1,140.22
Consolidated
Profit
&
Loss account of State ------------------- in Rs. Cr. ------------------Bank of India
Mar '13
Mar '12
Mar '11
Mar '10
Mar '09
12 mths
12 mths
12 mths
12 mths
12 mths
Income
Interest Earned
167,978.14 147,197.39 113,636.44 100,080.73 91,667.02
49

50. Other Income
32,581.69 31,205.10 34,342.60 30,748.11 22,055.34
Total Income
200,559.83 178,402.49 147,979.04 130,828.84 113,722.36
Expenditure
Interest expended
106,817.91 89,319.55 68,086.40 66,637.51 62,626.47
Employee Cost
24,401.09 22,084.03 19,979.58 16,331.06 12,997.19
Selling
and
Admin
Depreciation
Miscellaneous
0.00
19,756.75 16,046.14 10,675.76 7,311.30
1,577.49
Expenses
1,371.61
1,380.55
1,321.56
924.46
49,440.35 29,884.38 31,288.22 23,842.40 18,684.03
Expenses
Preoperative
0.00
ExpCapitalised
Operating Expenses
Provisions
0.00
0.00
0.00
0.00
52,819.80 60,883.26 57,369.79 48,637.25 30,182.18
&
Contingencies
Total Expenses
22,599.13 12,213.51 11,324.70 3,533.53
9,734.80
182,236.84 162,416.32 136,780.89 118,808.29 102,543.45
Mar '13
Year
Profit
for
the
Mar '11
Mar '10
Mar '09
12 mths
Net
Mar '12
12 mths
12 mths
12 mths
12 mths
18,322.99 15,986.16 11,198.16 12,020.54 11,178.90
50

51. Minority Interest
Share
Of
638.44
P/L
Of
Associates
630.21
494.99
279.81
217.78
-231.68
0.00
0.00
0.00
0.00
Net P/L After Minority
Interest & Share Of 17,916.23 15,355.95 10,703.17 11,740.73 10,961.12
Associates
Extraordionary Items
0.00
0.00
0.00
0.00
0.00
Profit brought forward
892.74
522.92
58.58
216.00
87.74
Total
19,215.73 16,509.08 11,256.74 12,236.54 11,266.64
Preference Dividend
0.00
0.00
0.00
0.00
0.00
Equity Dividend
3,319.46
2,348.66
1,905.00
1,904.65
1,841.15
0.00
388.46
353.55
321.51
309.66
267.87
238.23
176.35
189.33
176.08
Equity Dividend (%)
0.00
0.00
0.00
0.00
0.00
Book Value (Rs)
1,827.89
1,583.05
1,314.51
1,309.46
1,140.22
Transfer to Statutory 14,066.97 12,236.16 7,962.06
9,665.09
8,676.22
Corporate
Dividend
Tax
Per share data (annualised)
Earning
Per
Share
(Rs)
Appropriations
51

52. Reserves
Transfer
to
Other
Reserves
0.00
0.00
0.00
0.00
0.00
2,737.12
2,258.55
2,226.16
2,150.81
892.74
522.92
58.58
216.00
Proposed
Dividend/Transfer
to 3,319.46
Govt
Balance c/f to Balance
Sheet
Total
1,422.54
18,808.97 15,866.02 10,743.53 11,949.83 11,043.03
52

53. Consolidated Balance Sheet of ------------------- in Rs. Cr. ------------------Corporation Bank
Mar '13
Mar '12
Mar '11
Mar '10
Mar '09
12 mths
12 mths
12 mths
12 mths
12 mths
Total Share Capital
152.91
148.13
148.13
143.44
143.44
Equity Share Capital
152.91
148.13
148.13
143.44
143.44
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Employee Stock Opiton
0.00
0.00
0.00
0.00
0.00
Reserves
9,449.60
8,197.00
7,053.38
5,688.31
4,798.86
Revaluation Reserves
0.00
0.00
0.00
0.00
0.00
Net Worth
9,602.51
8,345.13
7,201.51
5,831.75
4,942.30
Capital and Liabilities:
Share Application Money 0.00
Preference
Share
Capital
Init. Contribution Settler
Preference
Share
Application Money
53

54. Deposits
165,998.45 136,134.81 116,739.11 92,719.10 73,926.55
Borrowings
12,898.85 14,248.10 15,965.38 9,077.53
Total Debt
178,897.30 150,382.91 132,704.49 101,796.63 75,998.95
Minority Interest
0.00
0.00
0.00
0.00
0.00
Policy Holders Funds
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
4,971.19
4,554.91
3,412.27
3,809.68
5,852.86
Group Share in Joint
Venture
Other
Liabilities
&
Provisions
Total Liabilities
2,072.40
193,471.00 163,282.95 143,318.27 111,438.06 86,794.11
Mar '13
Mar '12
Mar '11
Mar '10
Mar '09
12 mths
12 mths
12 mths
12 mths
12 mths
8,847.85
9,288.24
8,142.32
8,835.03
5,590.60
3,835.48
2,409.76
2,250.19
1,956.89
4,949.09
Assets
Cash & Balances with
RBI
Balance
with
Money at Call
Banks,
Advances
118,716.65 100,469.02 86,850.40 63,202.56 48,512.16
Investments
58,184.94 47,529.43 43,497.01 34,551.93 24,914.69
54

55. Gross Block
439.89
997.31
906.53
817.43
778.37
0.00
641.81
578.47
526.51
477.81
439.89
355.50
328.06
290.92
300.56
Capital Work In Progress 3.34
2.09
4.59
0.00
0.00
Other Assets
3,442.87
3,570.01
2,493.44
2,869.85
2,625.49
Minority Interest
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Accumulated
Depreciation
Net Block
Group Share in Joint
Venture
Total Assets
193,471.02 163,624.05 143,566.01 111,707.18 86,892.59
Contingent Liabilities
57,689.94 38,333.14 37,662.79 34,033.38 36,355.20
Bills for collection
0.00
19,082.59 15,758.12 10,666.54 9,146.68
Book Value (Rs)
627.97
563.37
486.15
406.56
344.56
55

56. Consolidated
Profit
&
Loss ------------------- in Rs. Cr. ------------------account of Corporation Bank
Mar '13
Mar '12
Mar '11
Mar '10 Mar '09
12 mths
12 mths
12 mths
12 mths 12 mths
Income
Interest Earned
15,334.08 13,017.78 9,135.04
7,294.60 6,067.34
Other Income
1,619.93 1,506.50
1,194.69 1,110.48
Total Income
16,954.01 14,524.28 10,262.07 8,489.29 7,177.82
1,127.03
Expenditure
Interest expended
11,906.44 9,870.57
6,194.86
5,083.23 4,371.02
Employee Cost
990.54
913.44
895.10
631.80
468.06
Selling and Admin Expenses
0.00
349.39
304.55
258.12
223.36
Depreciation
96.63
79.81
69.28
65.95
55.13
Miscellaneous Expenses
2,517.17 1,792.96
1,585.16
1,268.96 1,160.82
Preoperative ExpCapitalised
0.00
0.00
0.00
0.00
0.00
56

57. Operating Expenses
1,997.21 1,783.93
1,642.01
1,260.15 1,001.90
Provisions & Contingencies
1,607.13 1,351.67
1,212.08
964.68
Total Expenses
15,510.78 13,006.17 9,048.95
7,308.06 6,278.39
Mar '13
Mar '12
Mar '11
Mar '10 Mar '09
12 mths
12 mths
12 mths
12 mths 12 mths
905.47
Net Profit for the Year
1,443.24 1,518.11
1,213.12
1,181.24 899.44
Minority Interest
0.00
0.00
0.00
0.00
0.00
Share Of P/L Of Associates
0.00
-0.27
-0.06
-0.11
-0.88
1,443.24 1,518.39
1,213.17
1,181.35 900.32
Extraordionary Items
0.00
0.00
206.95
0.00
0.00
Profit brought forward
0.00
0.00
0.00
0.00
0.00
Total
1,443.24 1,518.11
1,420.07
1,181.24 899.44
Preference Dividend
0.00
0.00
0.00
0.00
0.00
Equity Dividend
290.54
309.29
296.27
236.67
184.30
Corporate Dividend Tax
43.37
50.17
48.06
40.22
31.32
94.38
102.49
81.89
82.35
62.71
Net P/L After Minority Interest
& Share Of Associates
Per share data (annualised)
Earning Per Share (Rs)
57

58. Equity Dividend (%)
0.00
0.00
0.00
0.00
0.00
Book Value (Rs)
627.97
563.37
486.15
406.56
344.56
Transfer to Statutory Reserves 760.64
828.37
484.05
663.23
682.59
Transfer to Other Reserves
340.12
324.75
584.89
230.13
1.01
333.91
359.46
344.33
276.89
215.62
Balance c/f to Balance Sheet
8.57
5.81
6.85
11.10
1.11
Total
1,443.24 1,518.39
1,420.12
1,181.35 900.33
Appropriations
Proposed Dividend/Transfer to
Govt
58

59. Balance Sheet of Punjab & Sind ------------------- in Rs. Cr. ------------------Bank
Mar '13
Mar '12
Mar '11
Mar '10
Mar '09
12 mths
12 mths
12 mths
12 mths
12 mths
Total Share Capital
454.02
434.21
423.06
383.06
383.06
Equity Share Capital
254.02
234.21
223.06
183.06
183.06
Share Application Money
0.00
0.00
0.00
0.00
0.00
Preference Share Capital
200.00
200.00
200.00
200.00
200.00
Reserves
4,150.08 3,085.23 2,626.36 2,232.55 1,234.09
Revaluation Reserves
0.00
Net Worth
4,604.10 4,248.95 3,803.39 2,615.61 1,617.15
Deposits
70,641.50 63,123.98 59,723.19 49,155.09 34,675.65
Borrowings
2,540.05 3,382.33 2,885.89 3,701.05 3,606.48
Total Debt
73,181.55 66,506.31 62,609.08 52,856.14 38,282.13
Other Liabilities & Provisions
2,692.25 2,150.01 2,137.68 1,193.14 879.30
Capital and Liabilities:
729.51
753.97
0.00
0.00
59

60. Total Liabilities
80,477.90 72,905.27 68,550.15 56,664.89 40,778.58
Mar '13
Mar '12
Mar '11
Mar '10
Mar '09
12 mths
12 mths
12 mths
12 mths
12 mths
Assets
Cash & Balances with RBI
Balance with Banks, Money at
Call
3,248.92 3,640.15 4,579.80 3,788.26 2,840.44
830.29
675.27
316.67
967.06
0.00
Advances
51,430.79 46,151.41 42,637.85 32,639.11 24,615.35
Investments
22,542.48 20,064.13 18,643.65 17,886.84 12,627.43
Gross Block
844.13
1,007.16 973.75
725.48
555.76
Accumulated Depreciation
0.00
198.78
157.50
186.57
504.87
Net Block
844.13
808.38
816.25
538.91
50.89
Capital Work In Progress
0.00
0.00
0.00
0.00
0.00
Other Assets
1,581.30 1,565.93 1,555.92 844.70
Total Assets
80,477.91 72,905.27 68,550.14 56,664.88 40,778.58
644.47
60

61. Contingent Liabilities
7,578.22 9,396.94 7,268.34 4,994.47 823.11
Bills for collection
433.44
1,925.38 1,903.49 1,544.70 982.10
Book Value (Rs)
173.38
141.73
127.74
131.96
77.42
Profit & Loss account of Punjab ------------------- in Rs. Cr. ------------------& Sind Bank
Mar '13 Mar '12
Mar '11
Mar '10
Mar '09
12 mths 12 mths
12 mths
12 mths
12 mths
Interest Earned
7,340.12 6,474.50
4,932.51
3,934.18
3,247.17
Other Income
417.15
424.45
393.17
383.54
Total Income
7,757.27 6,867.50
5,356.96
4,327.35
3,630.71
Interest expended
5,699.10 4,973.44
3,372.06
2,750.23
2,235.31
Employee Cost
773.51
832.43
755.85
529.64
518.86
Selling and Admin Expenses
0.00
212.85
289.05
196.34
82.88
Income
393.00
Expenditure
61

62. Depreciation
49.69
43.83
27.85
30.68
0.00
Miscellaneous Expenses
895.75
353.67
385.98
311.65
359.25
Preoperative ExpCapitalised
0.00
0.00
0.00
0.00
0.00
Operating Expenses
1,119.32 1,219.64
1,144.00
810.10
750.19
Provisions & Contingencies
599.63
314.73
258.21
210.80
Total Expenses
7,418.05 6,416.22
4,830.79
3,818.54
3,196.30
Mar '13 Mar '12
Mar '11
Mar '10
Mar '09
12 mths 12 mths
12 mths
12 mths
12 mths
Net Profit for the Year
339.22
451.29
526.17
508.80
434.41
Extraordionary Items
0.00
0.00
0.00
0.00
0.00
Profit brought forward
1,422.51 1,172.88
878.85
597.09
382.73
Total
1,761.73 1,624.17
1,405.02
1,105.89
817.14
Preference Dividend
16.44
19.00
13.50
12.74
2.74
Equity Dividend
68.08
46.84
44.61
0.00
0.00
Corporate Dividend Tax
14.36
10.46
9.65
2.17
0.46
223.14
Per share data (annualised)
62

63. Earning Per Share (Rs)
12.71
18.46
22.98
27.10
23.58
Equity Dividend (%)
26.80
20.00
20.00
0.00
0.00
Book Value (Rs)
173.38
141.73
127.74
131.96
77.42
Transfer to Statutory Reserves
119.77
125.36
163.33
212.17
234.05
Transfer to Other Reserves
0.00
0.00
1.06
-0.04
-0.02
98.88
76.30
67.76
14.91
3.20
Appropriations
Proposed Dividend/Transfer to
Govt
Balance c/f to Balance Sheet
1,543.08 1,422.51
1,172.88
878.85
579.91
Total
1,761.73 1,624.17
1,405.03
1,105.89
817.14
63