Analysis of public sector banks and private sector banks in India: A camel approach

Abstract

Financial institutions of a country play an indispensable role in the transformation of an economy. As an anchor of the economy, this assumes a prevalent job in the monetary improvement of the nation. The progress of a bank can be determined from its financial performance over the years and its ability to manage risks like market risk, credit risk, and liquidity risk. In the 1980s U.S introduced a supervisory framework model called “CAMEL” to determine the general condition of the bank. The model anticipates future risk that may affect a bank and can act as an effective instrument for guidance and management. The current study endeavors to evaluate the performance of 21 “public sector banks” and 18 “private sector banks” in India using the CAMEL approach for five years from 2014 until 2018. CAMEL model uses parameters such as “capital adequacy, asset quality, management efficiency, earning and liquidity” of the banks to determine the financial strength of a bank and ranks them from top to least. The study revealed that Indian Bank, Andhra Bank, State Bank of India, Canara Bank and Union Bank of India hold the top five position based on the CAMEL parameters. Similarly, Bandhan Bank, IndusInd Bank Ltd, Axis Bank Ltd, Yes Bank, and Kotak Mahindra Bank hold the top five ranks in private sector banks in India based on the CAMEL composite index ranking.