Available online at http://www.ijasrd.org/in International Journal of Advanced Scientific Research & Development Vol. 03, Spl. Iss. 03, Ver. I, Sep 2016, pp. 16 29 e-issn: 2395-6089 p-issn: 2394-8906 Performance Analysis of Three Public Sector Banks in India using Camel Model R. SHYAM PRASAD Assistant Professor, B.Com (Bank Management), Ramakrishna Mission Vivekananda College, Chennai. R. SREENATH Student (III Year), B.Com (Accounting & Finance), Ramakrishna Mission Vivekananda College, Chennai. ARTICLE INFO Article History: Received: 22 Sep 2016; Accepted: 22 Sep 2016; Published online: 28 Sep 2016. Key words: Performance, CAMEL Model, Public Sector Banks. ABSTRACT In today s scenario, the banking sector is one of the fastest growing sector and a lot of funds are invested in Banks. Also today s banking system is becoming more complex. There are so many models of evaluating the performance of the banks. This study has adopted the CAMEL Model to evaluate the performance of the banks. CAMEL is the best model because it measures the performance of the banks from each parameter. After deciding the model, three banks were chosen from the three public sectors banks, i.e. Vijaya Bank, United Bank of India, Bank of Maharashtra. The annual reports of the consecutive three years i.e. 2010 to 2012 of all the banks were used to calculate ratios for all the banks and interpreted them. Copyright 2016 IJASRD. This is an open access article distributed under the Creative Common Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. INTRODUCTION In the recent years the financial system especially the banks have undergone numerous changes in the form of reforms, regulations & norms. The attempt here is to see how various ratios have been used and interpreted to reveal a bank s performance and how this particular model encompasses a wide range of parameters making it a widely used and accepted model in today s scenario. 1.1 Need for the Study The ultimate need for the study is to find the performance level of three public sector bank using CAMEL Framework as a Tool. Through this project the Company is made aware of the areas in which they are effective and the areas in which they need to lay more emphasis. How to cite this article: Prasad, S. R. & Sreenath, R. (2016). Performance Analysis of Three Public Sector Banks in India using Camel Model. International Journal of Advanced Scientific Research & Development (IJASRD), 03 (03/I), [Special Issue Sep 2016], pp. 16 29.
Emerging Innovative Strategies in Business Creating a Competitive Edge Organized by PG Department of Banking & Insurance Management and Department of Bank Management, Ethiraj College for Women (Autonomous), Chennai 600 008. 1.2 Scope of the Study This study was done using CAMEL Framework to the study of banking performance of public sector bank in India. The study covers three public sector banks only. Financials and other data regarding the bank financials are based on the yearly annual reports. This study also suggests that the bank should try formulating their future course of action. 1.3 Objective of the Study To study CAMEL Model Analysis of three public Sector Banks in India. To understand the financial performance of the banks. To apply CAMELS model of ranking on selected banking institutions & analyse the selected banks. To analyse the banks performance through CAMEL model and give suggestion for improvement if necessary. RESEARCH METHODOLOGY Here, we are under going to have analytical research i.e. analysis of banks financial statements which will make us understand the position of one bank in comparison of another and their financial position. 2.1 Research Design Area of Survey: The survey will be done for three banks. The study environment will be the Banking industry. Plan of Analysis: Here, we will be using financial statements of the banks in order to calculate different ratios required for camel rating system as it considers all areas of banking operations and considered to be the best available method for evaluation bank performance and bank s health. 2.2 Data Collection Method (i) Primary Data: Primary data was collected from the bank s balance sheet and bank s income statement and interview of the bank employees. (ii) Secondary Data: Secondary data on the subject was collected from bank s prospectus, annual reports and other websites. 2.3 Limitations of Study The study was limited to three banks only. Time and resource constrains. The method discussed pertains only to banks though it can be used for performance evaluation of other financial institutions. The study was completely done on the basis of ratios calculated from the balance sheets. 17 Volume 03, Special Issue 03, Version I 28 th September 2016
Performance Analysis of Three Public Sector Banks in India using Camel Model It was not possible to get a personal interview with the top management employees of all banks under study. CONCEPTUAL REVIEW 3.1 Capital Adequacy It is important for a bank to maintain depositors confidence and preventing the bank from going bankrupt. It reflects the overall financial condition of banks and also the ability of management to meet the need of additional capital. The following ratios measure capital adequacy: Capital Adequacy Ratio (CAR): The capital adequacy ratio is developed to ensure that banks can absorb a reasonable level of losses occurred due to operational losses and determine the capacity of the bank in meeting the losses. As per the latest RBI norms, the banks should have a CAR of 9 per cent. Debt-Equity Ratio (D/E): This ratio indicates the degree of leverage of a bank. It indicates how much of the bank business is financed through debt and how much through equity. Advance to Assets Ratio (Adv/Ast): This is the ratio indicates a bank s aggressiveness in lending which ultimately results in better profitability. Government Securities to Total Investments (G-sec/Inv): It is an important indicator showing the risk-taking ability of the bank. It is a bank s strategy to have high profits, high risk or low profits, low risk. 3.2 Assets Quality The quality of assets is an important parameter to gauge the strength of bank. The prime motto behind measuring the assets quality is to ascertain the component of nonperforming assets as a percentage of the total assets. The ratios necessary to assess the assets quality are: Net NPAs to Total Assets (NNPAs/TA): This ratio discloses the efficiency of bank in assessing the credit risk and, to an extent, recovering the debts. Net NPAs to Net Advances (NNPAs/NA): It is the most standard measure of assets quality measuring the net non-performing assets as a percentage to net advances. Total Investments to Total Assets (TI/TA): It indicates the extent of deployment of assets in investment as against advances. Percentage Change in NPAs: This measure tracks the movement in Net NPAs over previous year. The higher the reduction in the Net NPA level, the better it for the bank. 3.3 Management Efficiency Management efficiency is another important element of the CAMEL Model. The ratio in this segment involves subjective analysis to measure the efficiency and effectiveness of management. The ratios used to evaluate management efficiency are described as: Volume 03, Special Issue 03, Version I 28 th September 2016 18
Emerging Innovative Strategies in Business Creating a Competitive Edge Organized by PG Department of Banking & Insurance Management and Department of Bank Management, Ethiraj College for Women (Autonomous), Chennai 600 008. Total Advances to Total Deposits (TA/TD): This ratio measures the efficiency and ability of the bank s management in converting the deposits available with the bank excluding other funds like equity capital, etc. into high earning advances. Profit per Employee (PPE): This shows the surplus earned per employee. It is known by dividing the profit after tax earned by the bank by the total number of employees. Business per Employee (BPE): Business per employee shows the productivity of human force of bank. It is used as a tool to measure the efficiency of employees of a bank in generating business for the bank. Return on Net Worth (RONW): It is a measure of the profitability of a bank. Here, PAT is expressed as a percentage of Average Net Worth. 3.4 Earning Quality The quality of earnings is a very important criterion that determines the ability of a bank to earn consistently. It basically determines the profitability of bank and explains its sustainability and growth in earnings in future. The following ratios explain the quality of income generation. Operating Profit to Average Working Funds (OP/AWF): This ratio indicates how much a bank can earn profit from its operations for every rupee spent in the form of working fund. Percentage Growth in Net Profit (PAT Growth): It is the percentage change in net profit over the previous year. Net Profit to Average Assets (PAT/AA): This ratio measures return on assets employed or the efficiency in utilization of assets. 3.5 Liquidity Risk of liquidity is curse to the image of bank. Bank has to take a proper care to hedge the liquidity risk; at the same time ensuring good percentage of funds are invested in high return generating securities, so that it is in a position to generate profit with provision liquidity to the depositors. The following ratios are used to measure the liquidity: Liquid Assets to Demand Deposits (LA/DD): This ratio measures the ability of bank to meet the demand from depositors in a particular year. To offer higher liquidity for them, bank has to invest these funds in highly liquid form. Liquid Assets to Total Deposits (LA/TD): This ratio measures the liquidity available to the total deposits of the bank. Liquid Assets to Total Assets (LA/TA): It measures the overall liquidity position of the bank. The liquid asset includes cash in hand, balance with institutions and money at call and short notice. The total assets include the revaluation of all the assets. 19 Volume 03, Special Issue 03, Version I 28 th September 2016
Performance Analysis of Three Public Sector Banks in India using Camel Model 3.6 Research Review In the process of continuous evaluation of the bank s financial performance both in public sector and private sector, the academicians, scholars and administrators have made several studies on the CAMEL model but in different perspectives and in different periods. Cole et al (1995) have conducted a study on A CAMEL Rating's Shelf Life and their findings suggest that, if a bank has not been examined for more than two quarters, off-site monitoring systems usually provide a more accurate indication of survivability than its CAMEL rating. Godlewski (2003) have tested the validity of the CAMEL rating typology for bank's default modification in emerging markets. He focused explicitly on using a logical model applied to a database of defaulted banks in emerging markets. Said & Saucier (2003) examined the liquidity, solvency and efficiency of Japanese Banks using CAMEL rating methodology, for a representative sample of Japanese banks for the period 1993-1999, they evaluated capital adequacy, assets and management quality, earnings ability and liquidity position. Prasuna (2003) have analyzed the performance of Indian banks by adopting the CAMEL Model. The performance of 65 banks was studied for the period 2003-04. The author concluded that the competition was tough and consumers benefited from better services quality, innovative products and better bargains. Derviz et al. (2008) investigated the determinants of the movements in the long term Standard & Poor s and CAMEL bank ratings in the Czech Republic during the period when the three biggestbank s, representing approximately 60% of the Czech banking sector's total assets, were privatized (i.e., the time span 1998-2001). Bhayani (2006) analyzed the performance of new private sector banks through the help of the CAMEL model. Four leading private sector banks Industrial Credit & Investment Corporation of India, Housing Development Finance Corporation, Unit Trust of India and Industrial Development Bank of India - had been taken as a sample. DATA ANALYSIS AND INTERPRETATION 4.1 Capital Adequacy 4.1.1 Table Indicating Summarized Capital Adequacy Ratio of Three Banks 4.1.1.1 Vijaya Bank Capital Adequacy Ratio (CAR): 13.06 13.88 12.5 13.14667 Debt-Equity Ratio (D/E): 1.03164 0.420463 0.557833 0.669979 Advance to Assets Ratio 60.46504 59.63797 59.12914 59.74405 Government Securities to Total Investments 82.74339 72.77364 67.54132 74.35278 4.1.1.2 United Bank of India Capital Adequacy Ratio (CAR): 12.69 13.05 12.8 12.84667 Debt-Equity Ratio (D/E): 0.881803 0.574817 0.234526 0.563716 Volume 03, Special Issue 03, Version I 28 th September 2016 20
Emerging Innovative Strategies in Business Creating a Competitive Edge Organized by PG Department of Banking & Insurance Management and Department of Bank Management, Ethiraj College for Women (Autonomous), Chennai 600 008. Advance to Assets Ratio 61.80085 59.4204 54.96607 58.72911 Government Securities to Total Investments 78.03588 72.82629 75.06286 75.30834 4.1.1.3 Bank of Maharashtra Capital Adequacy Ratio (CAR): 12.43 13.35 12.78 12.85333 Debt-Equity Ratio (D/E): 0.809872 0.774771 0.978499 0.85438 Advance to Assets Ratio 63.69169 61.32838 56.73669 60.58559 Government Securities to Total Investments 76.48642 82.4389 85.47411 81.46648 It s clear that all banks are maintained higher CAR than the prescribed level. It is found that Vijaya bank secured the top position with highest average CAR of 13.15 followed by Bank of Maharashtra (12.85), united bank of India (12.84). United bank of India is at the bottom most position with lest average CAR. In terms of Debt equity ratio United Bank of India is at the top position with least average of 0.56 followed by Vijaya bank (0.67) and Bank of Maharashtra (0.85). In case of advances to assets, Bank of Maharashtra is at the first position with highest average of 60.58% followed by Vijaya bank (59.74) and United bank of India (58.72%). United bank of India is at the bottom most position with least average of 58.72%. Its again Bank of Maharashtra is at the top position in Government securities to Investments with highest average of 81.46, followed by united bank of India (75.31) and Vijaya Bank (74.35). Vijaya Bank is at the last position with the least average. 4.1.2 Table Indicating Capital Adequacy Ratio Capital Adequacy Ratio (CAR): 13.14666667 12.84666667 12.85333333 Debt-Equity Ratio (D/E): 0.669978735 0.563715527 0.854380387 Advance to Assets Ratio 59.74404929 58.72910567 60.58558675 Government Securities to Total Inv 74.35278184 75.30834265 81.46647805 4.1.3 Table Indicating Rank Position of Various Ratios Capital Adequacy Ratio (CAR) 1 3 2 Debt-Equity Ratio (D/E) 2 1 3 Advance to Assets Ratio 2 3 1 Government Securities to Total Inv 3 2 1 Average 2 2.25 1.75 Rank 2 3 1 21 Volume 03, Special Issue 03, Version I 28 th September 2016
Performance Analysis of Three Public Sector Banks in India using Camel Model On the basis of group averages of four sub-parameters of capital adequacy Bank of Maharashtra is at the top position with group average 1.75, followed by Vijaya Bank (2) and United bank of India (2.25) which stood at the last position due to its poor performance in CAR and Adv/Ast. 4.2 Asset Quality 4.2.1 Table Indicating Summarized Asset Quality Ratio of Three Banks 4.2.1.1 Vijaya Bank Net NPAs to Total Assets (NNPAs/TA) 1.031713 0.907277 0.828172 0.922387 Net NPAs to Net Advances (NNPAs/NA) 1.706297 1.521307 1.400616 1.54274 Total Investments to Total Assets (TI/TA) 29.91082 30.77291 30.05813 30.24729 Percentage Change in NPAs YoY 34.68286 27.42906 98.93945 53.68379 4.2.1.2 United Bank of India Net NPAs to Total Assets (NNPAs/TA) 1.054353 0.841188 1.010957 0.968833 Net NPAs to Net Advances (NNPAs/NA) 1.70605 1.415655 1.839238 1.653648 Total Investments to Total Assets (TI/TA) 28.48612 29.16348 33.84928 30.49962 Percentage Change in NPAs YoY 42.00367-2.7153-0.05777 13.07687 4.2.1.3 Bank of Maharashtra Net NPAs to Total Assets (NNPAs/TA) 0.533497 0.809697 0.932267 0.758487 Net NPAs to Net Advances (NNPAs/NA) 0.837624 1.320264 1.643148 1.267012 Total Investments to Total Assets (TI/TA) 26.0305 29.42233 30.01001 28.48761 Percentage Change in NPAs YoY -24.1344-6.56371 143.63 37.64396 Bank of Maharashtra is at the top position with an average NNPAs/TA of 0.75, followed by Vijaya Bank (0.92) and United bank of India (0.97) which stood at the last position. In case of NNPAs/NA it s again bank of Maharashtra is at the top position with an average of 1.27 followed by Vijaya bank (1.54) and United bank of India (1.65) which stood at last position. In terms of TI/TA, Bank of Maharashtra is at the first position with an average of 28.49 followed by Vijaya Bank (30.25) and United bank of India (30.50). United bank of India is at first position with percentage change in NPAs with an average 13.07 followed by Bank of Maharashtra (37.64) and Vijaya Bank (53.68). Volume 03, Special Issue 03, Version I 28 th September 2016 22
Emerging Innovative Strategies in Business Creating a Competitive Edge Organized by PG Department of Banking & Insurance Management and Department of Bank Management, Ethiraj College for Women (Autonomous), Chennai 600 008. 4.2.2 Table Indicating Asset Quality Ratio Net NPAs to Total Assets (NNPAs/TA) 0.922387487 0.968832607 0.758486996 Net NPAs to Net Adv (NNPAs/NA) 1.542740294 1.653647519 1.267011893 Total Investment to Total Assets (TI/TA) 30.2472872 30.49962374 28.48761224 Percentage Change in NPAs YoY 53.68378985 13.07686665 37.64395915 4.2.3 Table Indicating Rank Position of Various Ratios Net NPAs to Total Assets (NNPAs/TA) 2 3 1 Net NPAs to Net Adv (NNPAs/NA) 2 3 1 Total Inv to Total Assets (TI/TA) 2 3 1 Percentage Change in NPAs 3 1 2 Average 2.25 2.5 1.25 Rank 2 3 1 On the bases of group averages of sub-parameters of assets quality, Bank of Maharashtra is at the top position with group average 1.25, followed by Vijaya Bank (2.25) and united bank of India stands at bottom with average of (2.5). 4.3 Management 4.3.1 Table Indicating Summarized Management Ratio of Three Banks 4.3.1.1 Vijaya Bank Total Advances to Total Deposits (TA/TD): 69.71692 66.5116 67.04432 67.75761 Profit per Employee (PPE): 0.049078 0.045889 0.043864 0.046277 Business per Employee (BPE): 0.719381 0.558673 0.508439 0.595498 4.3.1.2 United Bank of India Total Advances to Total Deposits (TA/TD): 70.74275 68.72963 62.08542 67.18593 Profit per Employee (PPE): 0.040808 0.034781 0.02109 0.032226 Business per Employee (BPE): 0.560903 0.463319 0.379959 0.46806 4.3.1.3 Bank of Maharashtra Total Advances to Total Deposits (TA/TD): 73.2533 70.13382 63.68421 69.02378 Profit per Employee (PPE): 0.033963 0.01541 0.032155 0.027176 Business per Employee (BPE): 0.626266 0.528805 0.389585 0.514886 23 Volume 03, Special Issue 03, Version I 28 th September 2016
Performance Analysis of Three Public Sector Banks in India using Camel Model It is found that Bank of Maharashtra secured the top position with highest average TA/TD of 69.02 followed by Vijaya Bank (67.76), united bank of India (67.18). United bank of India is at the bottom most position with lest average TA/TD. In terms of PPE Vijaya bank is at the top position with least average of 0.046crores followed by United Bank of India (0.032crores) and Bank of Maharashtra (0.027). In case of Business per Employee, Vijaya bank is at the first position with highest average of 0.59crores followed by Bank of Maharashtra (0.51crores) and United bank of India (0.47crores). 4.3.2 Table Indicating Management Ratio Total Adv to Total Deposits (TA/TD) 67.75761177 67.18593188 69.02377781 Profit per Employee (PPE) 0.046277127 0.032226417 0.027175869 Business per Employee (BPE) 0.595497621 0.468060322 0.514885521 4.3.3 Table Indicating Rank Position of Various Ratios Total Adv to Total Deposits (TA/TD) 2 3 1 Profit per Employee (PPE) 1 2 3 Business per Employee (BPE) 1 3 2 Average 1.3 2.6 2 Rank 1 3 2 On the basis of group averages of three sub-parameters, Vijaya bank is at the top most position with group average 1.33, followed by Bank of Maharashtra (2) and United Bank of India (2.67) which is positioned at last due to its poor performance in all sub parameters of management efficiency. 4.4 Earnings 4.4.1 Table Indicating Summarized Earnings Ratio of Three Banks 4.4.1.1 Vijaya Bank Operating Profit to Avg Working Funds 1.284898 1.281261 1.505167 1.357109 Percentage Growth in Net Profit 10.91405 3.258491 93.26806 35.81353 Net Profit to Average Assets (PAT/AA) 0.654804 0.689633 0.765119 0.703185 4.1.2 United Bank of India Operating Profit to Avg Working Funds 1.116435 1.208134 0.783159 1.035909 Percentage Growth in Net Profit 20.74179 62.51086 74.52222 52.59162 Net Profit to Average Assets (PAT/AA) 0.658711 0.627195 0.463654 0.583187 Volume 03, Special Issue 03, Version I 28 th September 2016 24
Emerging Innovative Strategies in Business Creating a Competitive Edge Organized by PG Department of Banking & Insurance Management and Department of Bank Management, Ethiraj College for Women (Autonomous), Chennai 600 008. 4.1.3 Bank of Maharashtra Operating Profit to Avg Working Funds 0.956391 0.671134 0.793616 0.807047 Percentage Growth in Net Profit 139.8694-59.6097 21.31898 33.85955 Net Profit to Average Assets (PAT/AA) 0.518012 0.24079 0.675952 0.478251 It is found that Vijaya Bank secured the top position with highest average operating profit to avg working funds of 1.36 followed by United Bank of India (1.04), Bank of Maharashtra (0.81). Bank of Maharashtra is at the bottom most position with lest average operating profit to avg working funds. In terms of Percentage Growth in Net Profit United bank of India is at the top position with least average of 52.59 followed by Vijaya Bank (35.81) and Bank of Maharashtra (33.85). In case of PAT/AA, Vijaya bank is at the first position with highest average of 0.70 followed by united bank of India (0.58) and Bank of Maharashtra (0.48). 4.4.2 Table Indicating Earnings Ratio Op Profit to Avg Working Funds 1.357108756 1.035909207 0.807046913 Percentage Growth in Net Profit 35.81353472 52.59162285 33.85954693 Net Profit to Avg Assets (PAT/AA) 0.703185198 0.583186557 0.478251169 4.4.3 Table Indicating Rank Position of Various Ratios Op Profit to Avg Working Funds 1 2 3 Percentage Growth in Net Profit 2 1 3 Net Profit to Avg Assets (PAT/AA) 1 2 3 Average 1.33 1.66 3 Rank 1 2 3 On the basis of group averages, Vijaya bank was at the top position with group average (1.33) followed by United bank of India (1.67) and Bank of Maharashtra (3) which failed in all sub-parameters and stood at last place. 4.5 Liquidity 4.5.1 Table Indicating Summarized Liquidity Ratio of Three Banks 4.5.1.1 Vijaya Bank Liquid Assets to Demand Deposits (LA/DD) 136.6968 104.9926 94.90197 112.1971 Liquid Assets to Total Deposits (LA/TD) 7.709121 7.404361 8.960283 8.024588 Liquid Assets to Total Assets (LA/TA) 6.686072 6.639158 7.902442 7.075891 25 Volume 03, Special Issue 03, Version I 28 th September 2016
Performance Analysis of Three Public Sector Banks in India using Camel Model G-Sec to Total Assets (G-Sec/TA) 24.74923 22.39456 20.30166 22.48182 Approved Securities to Total Assets (AS/TA) 24.75393 22.41071 20.31057 22.49174 4.5.1.2 United Bank of India Liquid Assets to Demand Deposits (LA/DD) 74.7088 85.92042 95.93923 85.52282 Liquid Assets to Total Deposits (LA/TD) 8.166018 9.413268 9.354312 8.977866 Liquid Assets to Total Assets (LA/TA) 7.133832 8.138268 8.28165 7.85125 G-Sec to Total Assets (G-Sec/TA) 22.22939 21.23868 25.40823 22.95877 Approved Securities to Total Assets (AS/TA) 22.25721 21.28378 25.47848 23.00649 4.5.1.3 Bank of Maharashtra Liquid Assets to Demand Deposits (LA/DD) 67.97539 61.36904 108.0711 79.1385 Liquid Assets to Total Deposits (LA/TD) 7.506026 6.057844 10.57523 8.046366 Liquid Assets to Total Assets (LA/TA) 6.526279 5.29727 9.42154 7.081696 G-Sec to Total Assets (G-Sec/TA) 19.9098 24.25545 25.65079 23.27201 Approved Securities to Total Assets (AS/TA) 19.9098 24.27015 25.68706 23.289 Vijaya bank is at first place in LA/DD with highest average of 112.20, followed by United bank of India (85.52) and Bank of Maharashtra (79.14). In case of LA/TD, United bank of India for first position with highest average of 8.98, followed by Bank of Maharashtra (8.05) and Vijaya bank (8.02). In LA/TA, United bank of India is at top with the average 7.85, followed by Bank of Maharashtra (7.08) and Vijaya bank (7.07). Bank of Maharashtra is at the top position in G-Sec/TA with an average 23.27, followed by United bank of India (22.96) and Vijaya Bank (22.48). In terms of AS/TA, Bank of Maharashtra is at top position with an average 23.29. 4.5.2 Table Indicating Liquidity Ratio L.Assets to Demand Deposits (LA/DD) 112.1971108 85.52281597 79.13850373 L.Assets to Total Deposits (LA/TD) 8.024588375 8.977866284 8.046365944 L.Assets to Total Assets (LA/TA) 7.075890703 7.851250313 7.081696453 G-Sec to Total Assets (G-Sec/TA) 22.48181694 22.9587684 23.27201012 Approved Sec to Total Assets (AS/TA) 22.49173691 23.00649244 23.28900052 4.5.3 Table Indicating Rank Position of Various Ratios L.Assets to Demand Deposits (LA/DD) 1 2 3 L.Assets to Total Deposits (LA/TD) 3 1 2 L.Assets to Total Assets (LA/TA) 3 1 2 Volume 03, Special Issue 03, Version I 28 th September 2016 26
Emerging Innovative Strategies in Business Creating a Competitive Edge Organized by PG Department of Banking & Insurance Management and Department of Bank Management, Ethiraj College for Women (Autonomous), Chennai 600 008. G-Sec to Total Assets (G-Sec/TA) 3 2 1 Approved Sec to Total Assets (AS/TA) 3 2 1 Average 2.6 1.6 1.8 Rank 3 1 2 On the basis of group averages of Liquidity ratio, United bank of India is at the top position with group average (1.6) followed by Bank of Maharashtra (1.8) and Vijaya bank (2.6) which failed in all sub-parameters and stood at last place. 4.6 Overall Ranking 4.6.1 Table Indicating Overall Ranking all Three Banks Banks Vijaya Bank UBI BOM C 2 2.25 1.75 A 2.25 2.5 1.25 M 1.3 2.6 2 E 1.3 1.6 3 L 2.6 1.6 1.8 AVG 1.93 2.13 1.96 RANK 1 3 2 It is clear from the table that Vijaya bank is ranked at top position with composite average 1.9033, followed by Bank of Maharashtra (1.96) and United Bank of India (2.1367) which stands at the bottom most position. RESULTS AND DISCUSSION 5.1 Summary of Findings 5.1.1 Capital Adequacy The capital adequacy ratio of all the three banks is above the minimum requirements and above the industry average. Group averages of capital adequacy indicates Bank of Maharashtra is at the top position with group average 1.75, followed by Vijaya Bank (2) and United bank of India (2.25) which stood at the last position due to its poor performance in CAR and Adv/Ast. (i) Assets Quality: United bank of India and Bank of Maharashtra has shown remarkable decrease in NPA s. But the NPA of Vijaya bank is increasing every year. Group averages of sub-parameters of assets quality indicates, Bank of Maharashtra is at the top position with group average 1.25, followed by Vijaya Bank (2.25) and united bank of India stands at bottom with average of (2.5). (ii) Management: Professional approach that has been adopted by the banks in the recent past is in right direction & also it is the right decision. Group averages of three sub-parameters of Management ratio indicates, Vijaya bank is at the top most position with group average 1.33, followed by Bank of 27 Volume 03, Special Issue 03, Version I 28 th September 2016
Performance Analysis of Three Public Sector Banks in India using Camel Model Maharashtra (2) and United Bank of India (2.67) which is positioned at last due to its poor performance in all sub parameters of management efficiency. (iii) Earnings: Vijaya bank has shown a good earning record. But Bank of Maharashtra has gone down in its performance. United bank of India performance has been average. Earnings ratio indicates, Vijaya bank was at the top position with group average (1.33) followed by United bank of India (1.67) and Bank of Maharashtra (3) which failed in all sub-parameters and stood at last place. (iv) Liquidity: Banks should maintain quality securities with good liquidity to meet contingencies. United Bank of India are fulfilling this requirement by maintaining highest credit deposit ratio followed by Bank of Maharashtra and Vijaya bank at last. Group averages of Liquidity ratio indicates, United bank of India is at the top position with group average (1.6) followed by Bank of Maharashtra (1.8) and Vijaya bank (2.6) which failed in all sub-parameters and stood at last place. (v) Overall Ranking: From the study of camel framework of three public sector banks the overall ranking indicates that Vijaya bank is ranked at top position with composite average 1.9033, followed by Bank of Maharashtra (1.96) and United Bank of India (2.1367) which stands at the bottom most position. SUGGESTIONS Vijaya Bank is excellent in Earnings ratio and management ratio but lacks in other ratio like Capital, Assets, and Liquidity etc, so more focus should be targeted towards these Capital, Assets Management and Liquidity to increase the bank performance and competitive efficiency. If we compare Vijaya Bank with Bank of Maharashtra and United bank of India s Liquidity ratio it is not quite good. So, Vijaya Bank should improve its liquidity ratio. The Major focus should be shown to Liquid assets to Total Deposits ratio, liquid assets to total assest, govt sec to total assets and approved sec to total assets. In Vijaya bank, debt equity ratio is continuously rising over the years which are not good so they have to increase equity or reduce debts in their capital structure. Vijaya bank has to give more advances in order to earn more interest. But they should have to also keep in mind the credit worthiness of the customers. Vijaya Bank should create more awareness among the people through Targeting youngsters as well as providing new schemes in order to attract more customers. The banks should adapt themselves quickly to the changing norms. The system is getting internationally standardized with the coming of BASELL II accords so the Indian banks should strengthen internal processes so as to cope with the standards. The banks should try to maintain a 0% NPA by always lending and investing or creating quality assets which earn returns by way of interest and profits. The bank should focus more on managing Liquidity as it is at the last position compared to other banks. Volume 03, Special Issue 03, Version I 28 th September 2016 28
Emerging Innovative Strategies in Business Creating a Competitive Edge Organized by PG Department of Banking & Insurance Management and Department of Bank Management, Ethiraj College for Women (Autonomous), Chennai 600 008. CONCLUSION The current Banking Crisis, which is quite unprecedented, underlines the importance of regulatory issues and the effects of incompetence in this area. CAMEL, as a rating system for judging the soundness of Banks is a quite useful tool that can help in mitigating the conditions and risks that lead to Bank failures. The report makes an attempt to examine and compare the performance of three different public sector banks of India i.e. Vijaya Bank, United Bank of India and Bank of Maharashtra. The analysis is based on the CAMEL Model. The study has brought many interesting results, some of which are mentioned as below: All the three banks have succeeded in maintaining CRAR at a higher level than the prescribed level, 9%. But Vijaya bank has maintained highest which is very good sign for bank to survive and to expand in future. In Management Quality, we have found that Business per Employee Ratio and Profit per Employee Ratio is more in Vijaya bank followed by Bank of Maharashtra and United bank of India. This shows the growth of the bank as well as efficiency of the employee, which is very good in all the banks and they will help to the bank to grow in future. After evaluating all the ratios, calculations and ratings we have given 1 st Rank to Vijaya bank, 2 nd Rank to bank of Maharashtra and 3 rd Rank to United bank of India. REFERENCE [1] Bhayani, S. (2006). Performance of the New Indian Private Sector Banks: A Comparative Study. Journal of Management Research, 5 (11), pp. 53-70. [2] Cole, Rebel A. and Gunther, Jeffery, (1995). A CAMEL Rating's Shelf Life. Available at SSRN: http://ssrn.com/abstract=1293504. [3] Derviz, A., & Podpiera, J. (2008). Predicting Bank CAMEL and S&P Ratings: The Case of the Czech Republic. Emerging Markets, Finance & Trade, 44 (1), p. 117. Retrieved April 13, 2010, from ABI/INFORM Global. (Document ID: 1454963901). [4] Godlewski, C. (2003). Bank s Default Modelisation: An Application to Banks from Emerging Market Economies. Journal of Social Science Research Network, 4 (3), pp. 150-155. [5] Gupta, R. (2008). A CAMEL Model Analysis of Private Sector Banks in India. Journal of Gyan Management, 2 (1), pp. 3-8. [6] Prasuna D G (2003). Performance Snapshot 2003-04. Chartered Financial Analyst, 10 (11), pp.6-13. [7] Said, M. & Saucier. (2003). Liquidity, solvency, and efficiency: An empirical analysis of the Japanese banks distress. Journal of Oxford, 5 (3), pp. 354-358. [8] Kothari, C.R., Research Methodology: Methods and Techniques, Wishwa Publication, Delhi [9] The ICFAI Journal of Bank Management Vol.V,NO.3,August 2006 [10] Prasad, K. V. N., Ravinder, G. & Reddy, M, D. (2011). A Camel Model Analysis of Public & Private Sector Banks in India. Journal on Banking Financial Services & Insurance Research, 1 (5), pp. 50 72. ANNUAL REPORTS: [11] Vijay bank 2009-2010, 2010-2011, 2011-2012 [12] Bank of Maharasthra 2009-2010, 2010-2011, 2011-2012 [13] United bank of India 2009-2010, 2010-2011, 2011-2012 29 Volume 03, Special Issue 03, Version I 28 th September 2016