Camel Rating
• 1. CAMELS RATINGS
• 2. INTRODUCTIONIn 1995, RBI had set up a working group under the chairmanship of Shri S. Padmanabhan to review the banking supervision system. The Committee certain recommendations and based on such suggetions a rating system for domestic and foreign banks based on the international CAMELS model combining financial management and systems and control elements was introduced for the inspection cycle commencing from July 1998. CAMELS evaluates banks on the following six parameters
• 3. key components of CAMELS ratings Capital adequacyAsset qualityManagementEarningsLiquiditySensitivity to market
• 4. Purpose of CAMELS ratingsThe purpose of CAMELS ratings is to determine a bank’s overall condition and to identify its strengths and weaknesses:FinancialOperationalManagerial
• 5. Rating ProvisionsEach element is assigned a numerical rating based on five key components:1 Strong performance, sound management, no cause for supervisory concern2 Fundamentally sound, compliance with regulations, stable, limited supervisory needs3 Weaknesses in one or more components, unsatisfactory practices, weak performance but limited concern for failure4 Serious financial and managerial deficiencies and unsound practices. Need close supervision and remedial action5 Extremely unsafe practices and conditions, deficiencies beyond management control. Failure is highly probable and outside financial assistance needed
• 6. SCORINGBank supervisory authorities assign each bank a score on a scale of 1 (best) to 5 (worst) for each factor. If a bank has an average score less than 2 it is considered to be a high-quality institution while banks with scores greater than 3 are considered to be less-than-satisfactory establishments. The system helps the supervisory authority identify banks that are in need of attention.
• 7. Capital AdequacyCapital adequacy is measured by the ratio of capital to risk-weighted assets . A sound capital base strengthens confidence of depositors
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• 2. INTRODUCTIONIn 1995, RBI had set up a working group under the chairmanship of Shri S. Padmanabhan to review the banking supervision system. The Committee certain recommendations and based on such suggetions a rating system for domestic and foreign banks based on the international CAMELS model combining financial management and systems and control elements was introduced for the inspection cycle commencing from July 1998. CAMELS evaluates banks on the following six parameters
• 3. key components of CAMELS ratings Capital adequacyAsset qualityManagementEarningsLiquiditySensitivity to market
• 4. Purpose of CAMELS ratingsThe purpose of CAMELS ratings is to determine a bank’s overall condition and to identify its strengths and weaknesses:FinancialOperationalManagerial
• 5. Rating ProvisionsEach element is assigned a numerical rating based on five key components:1 Strong performance, sound management, no cause for supervisory concern2 Fundamentally sound, compliance with regulations, stable, limited supervisory needs3 Weaknesses in one or more components, unsatisfactory practices, weak performance but limited concern for failure4 Serious financial and managerial deficiencies and unsound practices. Need close supervision and remedial action5 Extremely unsafe practices and conditions, deficiencies beyond management control. Failure is highly probable and outside financial assistance needed
• 6. SCORINGBank supervisory authorities assign each bank a score on a scale of 1 (best) to 5 (worst) for each factor. If a bank has an average score less than 2 it is considered to be a high-quality institution while banks with scores greater than 3 are considered to be less-than-satisfactory establishments. The system helps the supervisory authority identify banks that are in need of attention.
• 7. Capital AdequacyCapital adequacy is measured by the ratio of capital to risk-weighted assets . A sound capital base strengthens confidence of depositors
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