EVALUATION OF THE FINANCIAL PERFORMANCE OF PUBLIC AND PRIVATE SECTOR BANKS: CAMELS PRINCIPLES

Abstract

The CAMELS model is highly effective, efficient, and accurate as a tool for evaluating
performance and anticipating future risks in the banking industry. It focuses on key financial
performance indicators, including Capital adequacy, Asset quality, Management, Earnings,
Liquidity, and Sensitivity. The main objective of this study is to compare the performance of
private and public sector banks based on CAMELS parameters. The research examines the
financial performance of Indian banks from 2019 to 2023, focusing on two private sector
banks (HDFC Bank and ICICI Bank) and two public sector banks (State Bank of India and
Union Bank). The study's CAMELS rating results show that HDFC Bank, a private sector
bank, ranked first overall, followed by ICICI Bank and SBI in second and third place,
respectively, with Union Bank ranking last. Hypothesis testing indicates that there is no
significant difference between the performance of public and private sector banks in the
Indian banking sector. The study's outcomes are expected to provide valuable insights for
regulatory authorities in designing appropriate policies for the banking industry.
Today, the CAMELS model is an integral part of the RBI's supervisory framework, providing
a comprehensive and systematic approach to evaluating banks' overall health and
performance. Its evolution in India underscores the RBI's commitment to enhancing the
resilience and stability of the banking sector, aligning with global best practices in banking
supervision.
Regulatory bodies evaluate the general health and soundness of banks using a supervisory
rating system called the CAMELS model. It assesses banks using six main criteria: sensitivity
to market risk, earnings, asset quality, management quality, liquidity, and capital sufficiencyFrom 1 (strong) to 5 (weak), each component is given a rating