INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH AND REVIEW

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INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH AND REVIEW CALIBRATING FINANCIAL SOUNDNESS AMONG SELECTED PRIVATE SECTOR BANKS IN INDIA BY USING CAMEL MODEL Dr.P.Karthikeyan* 1, B.

1 INTERNATIONAL JOURNAL OF MANAGEMENT RESEARCH AND REVIEW CALIBRATING FINANCIAL SOUNDNESS AMONG SELECTED PRIVATE SECTOR BANKS IN INDIA BY USING CAMEL MODEL Dr.P.Karthikeyan* 1, B.Shangari 2 1 Assistant Professor (Sr.Grade), School of Management Studies, Kongu Engineering College, Perundurai, Erode, India. 2 Student, School of Management Studies, Kongu Engineering College, Perundurai, Erode, ABSTRACT India. The present study attempts to show the relative financial position and performance of each bank and a comparative result over a five year period from 2009 to This study aimed at top six private sector banks based on the statistical information of net profit, total assets and market capitalization during the year In recent years, the private sector banks give a very tough competition in terms of Capital Adequacy, Asset Quality, Management Efficiency, Earning Capacity and Asset Quality hence CAMEL model is been chosen for the study. The entire study is based on the secondary data, procured and extracted from financial statements of the selected privatized banks. The collected data is analyzed using various financial ratios and statistical tools. Keywords: CAMEL model, Private Sector Banks, Financial Soundness. 1. INTRODUCTION A resilient and vibrant banking system is very crucial for sound and accelerated economic growth. The increased presence of the private during the present decade has made the market structure of the banking sector in terms of competitive pricing of services, narrow spreads, and improving the quality of the services. Thus the present study is necessitated to examine the performance of private sector banks during the period For the comparative performance top six private sector banks in India during the period of 2013 are been undertaken for the study. The selected private sector banks are: ICICI, HDFC, AXIS, KOTAK, INDUSIND and YES bank. It is important to measure soundness across various banks in the country, identify the weaker sections of the banking sector, devise appropriate strategies and policies to lift these sections and eventually create an environment that leads banks to converge in soundness and result in a consistently stable system. Reserve Bank of India recommended supervisory rating model named as CAMELS for rating of Indian commercial Banks and Foreign Banks operating in India to measure the performance of the banks. *Corresponding Author 449

2 2. RESEARCH FRAMEWORK 2.1. Research Gap and Statement of the problem There have been a number of valuable studies on predicting the performance of the banks based on CAMEL model but the present study intends to manipulate the performance of the selected top six private sector banks based on both financial ratios and statistical tools. Despite of the presence of numerous banks functioning in the country most of the people randomly prefer to accumulate their valuable processions only based on the advertised interest rate by that particular bank but they fail to show interest on the real operating position or growth of the banks. The ultimate aim of people is to have their valuable possession to be transacted or to be kept in safe manner. But the list of private sector banks in India is around 24 ( So ultimately people will end up in confusion in selecting the best bank because of the varying market condition in India for the past few years. This study attempts to measure the relative performance of selected private sector banks to conclude its position in the current trend (1st April 2009 to 31st March 2013). 2.2 Objectives of the Study To study the financial soundness of the selected private sector banks in India by using CAMEL model. To make a comparative analysis of major Private Sector banks by using various financial ratios and statistical analysis including Composite Ranking Method. To suggest the way and means by which the banks can improve its financial soundness in order to embed themselves to be successful in the prevailing competitive nature of the materialized world Research Methodology The present study is purely an analytical Research Design. For analyzing the financial soundness, six leading private sector banks are selected on the basis of their total assets, market capitalization and net profit for the year concerning 2013 over the period of 2009 to Judgmental sampling is adopted for the study and it depends on secondary data. Suitable financial and Statistical techniques are used for analysis. 3. REVIEW OF LITERATURE Various studies relating to the financial performance of banks have been conducted by researchers. Few are been considered for gaining knowledge regarding the trends of banking sector. Kushalappa.S & Sharmila Kunder (2013) evaluated the financial performance of top 5 public and private sector banks of India. The study clearly showed that there is significant difference among public and private sector banks with regard to the financial performance and Sultan Singh, Sahila Choudhry & Mohina (2013) identified the liquidity of selected private sector Indian banks in India by using CAMEL Model ratios for a period of eleven years i.e. from to and finds, there is no significant difference in the Copyright 2012 Published by IJMRR. All rights reserved 450

3 ratio of liquid assets to total assets and liquid assets to demand deposits in selected banks during the period. Sahila Chaudhry (2012) made an attempt to analyze the performance of selected private and foreign banks in India on the basis of parameters recommended in CAMEL Model. Dr.Nagarajan.G, Asif Ali and Sathyanarayana.N (2013) found that the financial performance of ICICI sounds better than SBI and there is a significant impact of income on profitability of SBI and ICICI banks. Dr.Dhanabhakyam.M And Kavitha.M (2012) noticed the financial performance of the selected public sector banks have performed well on the sources of growth rate and financial efficiency. Cheenu Goel And Chitwan Bhutani Rekhi (2013), studied about the relative performance of Indian banks and finds new banks are more efficient than that of the old ones and the public sector banks. Mr.Prasad.K.V.N (2012), diagnosed that there is no significant difference between the performance of 26 public and 13 private sector banks. Morteza et al (2013) pointed out the CAMEL model which includes dimensions such as capital adequacy, asset quality, management quality, earning performance and liquidity to evaluate and compare the financial performance of public and private banks. 4. ANALYSIS AND INTERPRETATION Table 1: Composite Ranking of Banks in Capital Adequacy ( ) BANK Capital adequacy ratio Net advances to total assets Government securities to total investment Group rank Avg Rank Avg Rank Avg Rank Avg Rank ICICI HDFC AXIS KOTAK INDUSIND YES From table 1, on the basis of group averages of three sub-parameters of Capital Adequacy, KOTAK bank is at the top position with group average of 2.00, followed by HDFC and INDUSIND bank. ICICI bank stood at the last position due to its poor performance in CAR, Advances to assets and also due to less investment in Govt. Securities. Table 2: Composite Ranking of Banks in Asset Quality ( ) Gross NPA to Net NPA of NPA to Total Tot. Investments Group Rank BANK Net Advances Net Advances Assets to Tot. Assets Avg Rank Avg Rank Avg Rank Avg Rank Avg Rank ICICI HDFC AXIS KOTAK INDUSIND YES From table 2, on the basis of group averages of sub-parameters of assets quality, YES bank had the highest group average of 2.00, followed by HDFC bank (2.25) and AXIS bank (2.75). ICICI Bank (5.25) was positioned last in terms of Assets Quality. Copyright 2012 Published by IJMRR. All rights reserved 451

4 Table 3: Composite Ranking of Banks in Management Efficiency ( ) BANK Total Advances to Business per Profit per Group Rank Total Deposits Employee Employee Avg. Rank Avg. Rank Avg. Rank Avg. Rank ICICI HDFC AXIS KOTAK INDUSIND YES From table 3, on the basis of group averages of three sub-parameters of Management Efficiency, ICICI bank is at the top position with group average of 2.67, followed by HDFC and YES bank. KOTAK and INDUSIND bank stood at the last position due to its poor performance in Business per Employee and Profit per Employee respectively. Table 4: Composite Ranking of Banks in Earning Quality ( ) BANK Operating Spread to Total Net Profit to Interest Income Group Rank Profit to Avg Assets Avg. Asset to Total Income Working Fund Avg Rank Avg Rank Avg Rank Avg Rank Avg Rank ICICI HDFC AXIS KOTAK INDUSIND YES From table 4, on the basis of group averages of 4 sub-parameters of Earnings Quality, YES bank is at the top followed by HDFC Bank and AXIS bank. ICICI bank was at the last position due to poor performance in Spread to Total Assets. Table 5: Composite Ranking of Banks in Liquidity ( ) BANK Liquidity Asset Govt.Security to Liquid assets to GROUP RANK to Total Asset Total Assets Total Deposits Avg Rank Avg Rank Average Rank Avg Rank ICICI HDFC AXIS KOTAK INDUSIND YES From table 5, on the basis of group averages of 3 sub-parameters of Liquidity, INDUSIND bank was at the top followed by HDFC bank, ICICI bank. AXIS bank was at the last position. 5. RESULTS AND DISCUSSION The composite ranking method defines the position of ICICI, HDFC, Axis, Kotak, IndusInd And Yes bank. These method categories the banks according to its ranking based on capital Copyright 2012 Published by IJMRR. All rights reserved 452

5 adequacy, asset quality, management efficiency, earning quality and liquidity. There is Negative correlation exists between Capital Adequacy ratio and Net Advances to Total Assets in Capital Adequacy Ratio. The study also gave the interpretation of there is no correlation exists between the ratios of Management Efficiency, Earning Quality and Liquidity. The bank should focus on improving the liquidity position in order to meet out its current obligations. The failure of having sufficient liquidity will result in the loss of creditor s confidence. The earning quality of the bank can be improved by increasing the net and operating profits through their efficient technology. The credit policy used by the bank can further be improvised so that foreclosures can be reduced. The creditworthiness of the banks can further be improved by having a proper internal audit team. The present research work analyzes the overall financial performance of leading private sector banks in India through application of CAMEL Model. Besides it also attempts to compare the performance of these Banks with the help of various statistical tools such as Ratio Analysis, Descriptive Statistics, Correlation, Analysis of Variance, Composite Ranking Method and Correspondence Analysis.Overall, analysis supports the conclusion that HDFC bank is more efficient than other banks. The private sector banks are as profitable as other sectors are. It can be concluded that there is an urgent need of spreading the awareness among the common people. 6. CONCLUSION A good bank is not only the financial heart of the community, but also one with an obligation of helping in every possible manner to improve the economic conditions of the common people. The growth and financial stability of the country depends on the financial soundness of its banking sector. They have control over a large part of the supply of money in circulation. Nowadays the function of bank is not limited with in the same geographical limit of any country and it is difficult to know about their esteemed soundness at a glance REFERENCES Kushalappa S, Kunder S. Financial Performance Evaluation of Private Sector and Public Sector Banks in India: A Comparative Study. International Journal of Research in Computer Application & Management 2013; 3(1): Singh S, Choudhry S, Mohina. Analysis of Liquidity of Selected Private Sector Indian Banks. International Journal of Research in Commerce, IT & Management 2013; 3(1): Chaudhry S. Performance Appraisal of Indian Banking Sector: A Comparative Study of Selected Private and Foreign Banks. International Journal of Research in Computer Application & Management 2012; 2(6): Kushalappa S, Bhandary PR. Financial Performance Evaluation of Private Sector Banks in India: A Comparative Study. International Journal of Research in Commerce, Economics & Management 2013; 3(3): Copyright 2012 Published by IJMRR. All rights reserved 453

6 Nagarajan G, Ali AA, Sathyanarayana N. Financial Performance Analysis of State Bank Of India And ICICI Bank In India: A Comparative Study. International Journal of Management Research And Review 2013; 3(9): Dhanabhakyam M, Kavitha M. Financial Performance of Selected Public Sector Banks in India. International Journal of Multidisciplinary Research 2012; 2(1): Goel C, Rekhi CB. A Comparative Study on the Performance of Selected Public Sector and Private Sector Banks in India. Journal of Business Management & Social Sciences Research 2013; 2(7): Reddy MD, Prasad KVN. Evaluating Performance of Regional Rural Banks: An Application of CAMEL Model. International Refereed Research Journal 2011; II(4): Prasad KVN. Evaluating Performance of Public and Private Sector Banks through CAMEL Model. Asian Journal of Research in Banking and Finance 2012; 2(3): Morteza et al. Evaluating the Performance of Public and Private Banks and Providing Suggestions for Improving the Performance of them. Journal of Basic and Applied Scientific Research 2013; 3(2): Copyright 2012 Published by IJMRR. All rights reserved 454

ANALYSIS OF EARNING QUALITY OF PUBLIC SECTOR BANK: A STUDY OF SELECTED BANKS

Available online at : http://euroasiapub.org/current.php?title=ijrfm, pp. 103~110 Thomson Reuters ID: L-5236-2015 ANALYSIS OF EARNING QUALITY OF PUBLIC SECTOR BANK: A STUDY OF SELECTED BANKS Anju Saharan