CAMEL MODEL

Banking and Insurance- Risk And

Profitability Management
 CAMEL MODEL
• Economic development of any country is
mainly influenced by the growth of banking
industry in that country.

• To have global standards, India joined in

Basel accord and urged our banks to
adhere to its norms by March 2007.
 Cont…
• Even though banking industry is under the strict control
there is lot of cases of bank failures worldwide. The
Global Trust bank and Nedungadi bank episodes are the
latest examples of mismanagement of Indian banking.

• Now CAMEL model is an internationally accepted tool for

evaluating performance and predicting bank failures.

• It is considered as the best available method for

evaluating bank performance and healthy position of the
bank since it consider all areas of banking operations.
 CAMEL
CAMEL Expansion

• C- Capital Adequacy,
• A- Asset Quality,
• M- Management Quality,
• E- Earnings Quality and
• L - Liquidity.
 Capital Adequacy
• Reflects the overall financial condition of
banks and also the ability of the
management to meet the need for
additional capital
• Ratios Used are:
– Capital Adequacy Ratio
– Debt-Equity Ratio
– Advances to Assets
– G-sec to Total Investments
 Ratios
• CAR
Tier1 Capital+ Tier2 Capital Risk Weighted Assets

• Has to be Min of 9%

• Debt to Equity Ratio

– Debt:- Total Borrowings and Deposits
– Equity:- Equity, Preference Shares, Reserves
and Surplus less Revaluation Reserves
 Cont…
• Advances to Asset
Total Advances (Receivables) Total Assets (Excluding Revaluation Reserves)

• G-sec- Total Investment

Amount invested in G-Sec Total Investment

 Asset Quality
• This section deals with Non Performing
Assets

• Net NPA’s to Total Asset

Net NPA Total Assets (Excluding Revaluation Reserves)

• Net NPA’s to Net Advances

Net NPA’s Net Advances
 Cont….
• Total Investments to Total Assets
Investments Total Assets

– Used to measure the percentage of Assets

Locked up in Investments

• Percentage Change in Net NPA

 Management
• Total Advances to Total Deposits
Advances Deposits

– Measures the efficiency of the management in

converting Deposit to Advances.

• Profit Per Employee

PAT Number of Employees
 Cont…
• Business Per Employee
Business Number of Employees

• Return on Net worth

 Earnings Quality
• Assesses the Quality of income in terms of
income generated by core activity.

• Operating Profit by Working Funds

Profit Working Funds

– Working Funds is the daily average of total

assets during the Year
 Cont…
• Spread
• PAT/Average Assets
• Percentage Growth in Net Profit
• Non-Interest Income/ Total Income
• Interest Income/ Total Income
 Liquidity
• Liquid Asset/ Demand Deposit
– Measures the ability of a bank to meet the
demand of Demand Deposit
– Liquid Asset:- Cash in Hand, Balance with
RBI, Balance with other Banks, money at Call
and Short Notice
• Liquid Asset/ Total Deposit
• Liquid Asset/ Total Assets
 Cont…
• G-sec/ Total Assets
– Measures the proportion of risk-free liquid
assets as a percentage of the assets held by
the bank.
• Approved Securities/ Total Assets
– Approved Securities:- Investments made in
state-associated bodies like Electricity
Boards, Housing Boards, Corporation Bonds
and Shares in Regional Rural Banks