TOLANI INSTITUTE OF RATING THE PERFORMANCE OF THE BANK THROUGH CAMELS MODEL A PROJECT REPORT SUBMITTED BY In partial fulfillment

of the requirements of Tolani I Post TOLANI INSTITUTE OF MANAGEMENT STUDIES Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES RATING THE PERFORMANCE OF THE BANK THROUGH CAMELS MODEL A PROJECT REPORT SUBMITTED BY RAVI MAJITHIYA (08085) AMIN PATTANI (08100) BATCH 2008-2010 TO, Prof. Hitendra Lachhwani partial fulfillment of the requirements of Institute of Management Studies For the award of the degree of ost Graduate Diploma in Management

TOLANI INSTITUTE OF MANAGEMENT STUDIES ADIPUR 370205 March - 2010 Rating The Performance of the Bank through CAMELS Model MANAGEMENT STUDIES Page 1 RATING THE PERFORMANCE OF THE BANK THROUGH CAMELS MODEL A PROJECT REPORT SUBMITTED BY partial fulfillment of the requirements of tudies, Adipur For the award of the degree of anagement TOLANI INSTITUTE OF MANAGEMENT STUDIES Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 2 ACKNOWLEDGMENT Words are the dress of thoughts, appreciating and acknowledging those, who are responsible for the successful completion of the project. Our sincerity gratitude goes to Prof. Hitendra Lachhwani who assigned us res ponsibility to work on this project and provided us all the help, guidance and encouragement to complete this project.

The encouragement and guidance given by Prof. Hitendra Lachhwani have made this a personally rewarding experience. We thank him for his support and insp iration, without which, understanding the details of the project would have been exponentially di fficult. With Sincere Thanks, Ravi Majithiya Amin Pattani

Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 3 DECLARATION We hereby declare that this project work entitled to Rating the Perfor mance of the Banks through CAMELS Model for banking institutions is our work, carried out under the guidance of our college guide, Prof. Hitendra Lachhwani. Our report neither fully nor partially has ever been submitted for award of any other degree to either this c ollege or any other college.

Signature ........ Ravi Majithiya (08085) Date: .. Place: . Amin Pattani (08100) Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 4 PREFACE We know that final the project is for the development and enhancement of the kno wledge in particular field. It can never be possible to make a mark in todays competitive era only with theoretical knowledge when industries are developing at global lev el, practical knowledge of administration and management of business is very importan t. Hence,

practical study is of great importance to PGDM student. With a view to expand the boundaries of thinking, we have done 4 th SEM FINAL PROJECT at three banks i.e. AXIS bank, Gandhidham Co-operative Bank an d Bank of India. We have made deliberate efforts to collect the required information and f ulfill project objectives. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 5 EXECUTIVE SUMMARY In todays scenario, the banking sector is one of the fastest growing sector and a lot of funds are invested in Banks. Also todays banking system is becoming more com plex. So, we thought of evaluating the performance of the banks. There are so many models of evaluating the performance of the banks, but we have chosen the CAMEL S Model to evaluate the performance of the banks. We have read a lot of books and found it the best model because it measures the performance of the banks from each para meter i.e. Capital, Assets, Management, Earnings and Liquidity After deciding the model, we have chosen three banks from the three different s ectors, i.e. AXIS Bank from Private Sector, Gandhidham Co-operative Bank from co-operative b anks and Bank of India from the public sector. Then we have collected ann ual reports of the consecutive five years i.e. 2004-05 to 2008-09 of all the banks. And we have calculated ratios for all the banks and interpreted them. After that we have given weightage to each parameter of the CAMELS Model. According to their importance and our understandings, we have allocated w eightage to the each ratios of the each parameter. From the weighted results of each ratio, we have given marks on the bases of the performance of the bank. And after addition of all the marks, we have given the rank 1, 2 and 3 to the banks. As per the whole evaluation, we gave 1 st rank to AXIS Bank, 2 nd rank to Bank of India and 3 rd rank to Gandhidham Co-operative Bank.

Rating The Performance of the Bank through CAMELS Model

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 6 CONTENTS Particulars Page No. Chapter 1 INTRODUCTION OF BANKING SECTOR 10 1.1) The Bank 11 1.2) The Origin and Use of Banks 11 1.3) Banking Reform 12 1.4) BASEL II Accord 14 Chapter 2 INTRODUCTION TO THE BANKS UNDER THE STUDY 18 2.1) AXIS Bank 19 2.2) Bank of India 21 2.3) Gandhidham Co-operative Bank 23 Chapter 3 CAMELS FRAMEWORK 25 3.1) C - Capital Adequacy 26 3.2) A - Asset Quality 28 3.3) M - Management 30 3.4) E - Earning 31 3.5) L - Liquidity 34 3.6) S - Sensitivity to Market Risk 36 Chapter 4 LITRATURE REVIEW 39 Chapter 5 OBJECTIVE & METHODOLOGY 43 5.1) Objective of the Study 43 5.2) Methodology Adopted 45 5.3) Limitations 47 Chapter 6 DATA INTERPRETATION AND ANALYSIS 48 6.1) Data Interpretation 49 6.2) Analysis 82 Chapter 7 CONCLUSION, SUGGESTIONS AND RECOMMENDATION 89 7.1) Conclusion 91 7.2) Suggestions and Recommendation 92 BIBLIOGRAPHY 93 ANNEXURE 94 Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 7 LIST OF TABLES: Particulars Page No. TABLE 1) Capital Risk Adequacy Ratio 49 TABLE 2) Debt Equity Ratio 51 TABLE 3) Total Advance to Total Asset Ratio 52 TABLE 4) Government Securities to Total Asset Ratio 54 TABLE 5) Gross NPA to Total Loan 56 TABLE 6) Net NPA to Total Loan 58 TABLE 7) Total Advance to Total Deposits 60 TABLE 8) Business per Employee 62 TABLE 9) Profit per Employee 64 TABLE 10) Dividend Payout Ratio 65 TABLE 11) Return on Asset 66 TABLE 12) Operating Profit to Average Working Fund 67 TABLE 13) Net Profit to Average Asset 68

TABLE 14) Interest Income to Total Income 69 TABLE 15) Other Income to Total Income 71 TABLE 16) Liquid Asset to Total Asset 73 TABLE 17) Government Security to Total Security 75 TABLE 18) Approved Security to Total Security 77 TABLE 19) Liquidity Asset to Demand Deposit 79 TABLE 20) Liquidity Asset to Total Deposit 81 TABLE - 21) Component Weightage 82 TABLE 22) Ratio Wise Weightage 83 TABLE 23) Capital Adequacy (Frequency) 84 TABLE 24) Asset Quality (Frequency) 84 TABLE 25) Management Quality (Frequency) 84 TABLE 26) Earning Quality (Frequency) 85 TABLE 27) Liquidity (Frequency) 85 TABLE 28) Capital Adequacy (Marks) 86 TABLE 29) Asset Quality (Marks) 86 TABLE 30) Management Quality (Marks) 87 TABLE 31) Earning Quality (Marks) 87 Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 8 TABLE 32) Liquidity (Marks) 88 TABLE 33) Overall Ranking 88 LIST OF CHARTS: Particulars Page No. CHART 1) Capital Risk Adequacy Ratio 49 CHART 2) Debt Equity Ratio 51 CHART 3) Total Advance to Total Asset Ratio 52 CHART 4) Government Securities to Total Asset Ratio 54 CHART 5) Gross NPA to Total Loan 56 CHART 6) Net NPA to Total Loan 58 CHART 7) Total Advance to Total Deposits 60 CHART 8) Business per Employee 62 CHART 9) Profit per Employee 64 CHART 10) Dividend Payout Ratio 65 CHART 11) Return on Asset 66 CHART 12) Operating Profit to Average Working Fund 67 CHART 13) Net Profit to Average Asset 68 CHART 14) Interest Income to Total Income 69 CHART 15) Other Income to Total Income 71 CHART 16) Liquid Asset to Total Asset 73 CHART 17) Government Security to Total Security 75 CHART 18) Approved Security to Total Security 77 CHART 19) Liquidity Asset to Demand Deposit 79 CHART 20) Liquidity Asset to Total Deposit 81 Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 9 ABBREVIATIONS BOI Bank of India CAMELS Capital Adequacy, Asset Quality, Management, Earning, Liquidity, Sensitiv ity

to Market Risk CRAR Capital Risk Adequacy Ratio CRR Cash Reserve Ratio GCB Gandhidham Co-Operative Bank GIC General Insurance Corporation G-Sec Government Securities IRB Internal Rating Based Approach LIC Life Insurance Corporation NII Net Interest Income NIM Net Interest Margin NPA Non Performing Asset RBI Reserve Bank of India ROA Return on Asset SLR Statutory Liquidity Ratio VaR Value at Risk YoY Year on Year

Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 10

Chapter 1 INTRODUCTION OF BANKING SECTOR Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 11 1.1) The Bank The word bank means an organization where people and business can inv est or borrow money; change it to foreign currency etc. According to Halsbury A Bank er is an individual, Partnership or Corporation whose sole pre-dominant business is banki ng, that is the receipt of money on current or deposit account, and the payment of cheque drawn and the collection of cheque paid in by a customer. 1.2) The Origin and Use of Banks The Word Bank is derived from the Italian word Banko signifying a bench,

which was erected in the market-place, where it was customary to exchange money. The Lombard Jews were the first to practice this exchange business, the first ben ch having been established in Italy A.D. 808. Some authorities assert that the Lombar d merchants commenced the business of money-dealing, employing bills of exchange as remittances, about the beginning of the thirteenth century. About the middle of the twelfth century it became evident, as the ad vantage of coined money was gradually acknowledged, that there must be some controlling power, some corporation which would undertake to keep the coins that were to bear the royal stamp up to a certain standard of value; as, independently of the sweating which invention ma y place to the credit of the ingenuity of the Lombard merchants- all coins will, by wear or abrasion, become thinner, and consequently less valuable; and it is of the last importance , not only for the credit of a country, but for the easier regulation of commercial transactions, that the metallic currency be kept as nearly as possible up to the legal standard. Much u nnecessary trouble and annoyance has been caused formerly by negligence in this respect. Th e gradual merging of the business of a goldsmith into a bank appears to have been the way in which banking, as we now understand the term, was introduced into England; and it was not until long after the establishment of banks in other countries-for state purposes, the regulation of the coinage, etc. that any large or similar institution was introduced into Engl and. It is only within the last twenty years that printed cheques have been in use i n that establishment. First commercial bank was Bank of Venice which was established in 1157 in Italy. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 12 1.3) THE BANKING REFORMS In 1991, the Indian economy went through a process of economic liberalization, w hich was followed up by the initiation of fundamental reforms in the banking s ector in 1992. The banking reform package was based on the recommendations proposed by th e Narasimham Committee Report (1991) that advocated a move to a more market oriented banking system, which would operate in an environment of prudential regulation and transparent a ccounting. One of the primary motives behind this drive was to introduce an ele ment of market discipline into the regulatory process that would reinforce the supervi

sory effort of the Reserve Bank of India (RBI). Market discipline, especially in the fina ncial liberalization phase, reinforces regulatory and supervisory efforts and provides a strong incen tive to banks to conduct their business in a prudent and efficient manner and to maintain adeq uate capital as a cushion against risk exposures. Recognizing that the success of economic re forms was contingent on the success of financial sector reform as well, the gov ernment initiated a fundamental banking sector reform package in 1992. Banking sector, the world over, is known for the adoption of multidim ensional strategies from time to time with varying degrees of success. Banks are very important for the smooth functioning of financial markets as they serve as repositories of vita l financial information and can potentially alleviate the problems created by information asymm etries. From a central banks perspective, such high-quality disclosures help the early detection of problems faced by banks in the market and reduce the severity of mar ket disruptions. Consequently, the RBI as part and parcel of the financial sector deregulation, attempted to enhance the transparency of the annual reports of Indian banks by, am ong other things, introducing stricter income recognition and asset classification rules, enhancing the capital adequacy norms, and by requiring a number of additional disclosures sought by in vestors to make better cash flow and risk assessments. During the pre economic reforms period, commercial banks & development financial institutions were functioning distinctly, the former specializing in sho rt & medium term financing, while the latter on long term lending & project financing. Commercial banks were accessing short term low cost funds thru savings investments like current accounts, savings bank accounts & short duration fixed deposits, besides collecti on float. Development Financial Institutions (DFIs) on the other hand, were essentially de pending on Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 13 budget allocations for long term lending at a concessionary rate of interest. Th e scenario has changed radically during the post reforms period, with the resolve of the govern ment not to fund the DFIs through budget allocations. DFIs like IDBI, IFCI & ICICI had poste d dismal financial results. Infect, their very viability has become a question mark. Now, they have taken the route of reverse merger with IDBI bank & ICICI bank thus converting t hem into

the universal banking system. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 14 1.4) BASEL - II ACCORD Bank capital framework sponsored by the worlds central banks designed to promote uniformity, make regulatory capital more risk sensitive, and promote en hanced risk management among large, internationally active banking organizations. The International Capital Accord, as it is called, will be fully effective by January 2008 for banks active in international markets. Other banks can choose to "opt in," or they can continue to follow the minimum capital guidelines in the original Basel Accord, finalized in 1988. The revised accord (Basel II) completely overhauls the 1988 Basel Accord and is b ased on three mutually supporting concepts, or "pillars," of capital adequacy. The fi rst of these pillars is an explicitly defined regulatory capital requirement, a minimum capital-to-asset ratio equal to at least 8% of risk-weighted assets. Second, bank supervisory agenc ies, such as the Comptroller of the Currency, have authority to adjust capital levels f or individual banks above the 9% minimum when necessary. The third supporting pillar calls upon market discipline to supplement reviews by banking agencies. Basel II is the second of the Basel Accords, which are recommendation s on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II, which was initially published in June 2004, is to create a n international standard that banking regulators can use when creating regulations about how mu ch capital banks need to put aside to guard against the types of financial and operat ional risks banks face. Advocates of Basel II believe that such an international standard can help protect the international financial system from the types of problems that might a rise should a major bank or a series of banks collapse. In practice, Basel II attempts t o accomplish this by setting up rigorous risk and capital management requirements designed t o ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices. Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability. Rating The Performance of the Bank through CAMELS Model

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 15 The final version aims at: 1. Ensuring that capital allocation is more risk sensitive; 2. Separating operational risk from credit risk, and quantifying both; 3. Attempting to align economic and regulatory capital more closely to reduce the scope for regulatory arbitrage. While the final accord has largely addressed the regulatory arbitrage issue, there are still areas where regulatory capital requirements will diverge from the economic. Basel II has largely left unchanged the question of how to actually define bank capital, which diverges from accounting equity in important respects. The Basel I definition, as modified up to the present, remains in place. The Accord in operation Basel II uses a "three pillars" concept (1) minimum capital requirements (addres sing risk), (2) supervisory review and (3) market discipline to promote greater s tability in the financial system. The Basel I accord dealt with only parts of each of these pillars. For example: with respect to the first Basel II pillar, only one risk, credit risk, was dealt with in a si mple manner while market risk was an afterthought; operational risk was not dealt with at all. The First Pillar The first pillar deals with maintenance of regulatory capital calculate d for three major components of risk that a bank faces: credit risk, operational risk a nd market risk. Other risks are not considered fully quantifiable at this stage. The credit risk component can be calculated in three different ways o f varying degree of sophistication, namely standardized approach, Foundation IRB and Advanced IRB. IRB stands for "Internal Rating-Based Approach". For operational risk, there are three different approaches - basic ind icator approach, standardized approach and advanced measurement approach. For market risk the preferred approach is VaR (value at risk). TOLANI INSTITUTE OF As the Basel II recommendations are phased in by the banking industry it will move from standardized requirements to more refined and specific requirements that have been developed for each risk category by each individual bank. The upside for banks that do develop their own bespoke risk measurement systems is that they will be rewarded with potentially lower risk capital requirements. In future there will be closer links between the concepts of economic profit and regulatory capital. Credit Risk can be calculated by usin 1. Standardized Approach 2. Foundation IRB (Internal Ratings Based) Approach

3. Advanced IRB Approach Credit Risk More risk sensitivity Operating Risk New Trading Market Risk Unchanged Minimum Capital PILLAR Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES recommendations are phased in by the banking industry it will move fro m ed requirements to more refined and specific requirements that have be en developed for each risk category by each individual bank. The upside for banks that do own bespoke risk measurement systems is that they will be rewarded wi th potentially lower risk capital requirements. In future there will be closer links between the concepts of economic profit and regulatory capital. Credit Risk can be calculated by using one of three approaches.. 1. Standardized Approach 2. Foundation IRB (Internal Ratings Based) Approach 3. Advanced IRB Approach NEW ACCORD More risk sensitivity Trading Market Risk Minimum I Supervisory Assessment of Bank Risk Management Policies and Practices Economic Capital Process Canresult in additional capital requirments Supervisory Review PILLAR - II Mandates increased disclosure of banks risk information. Disclosure PILLAR Rating The Performance of the Bank through CAMELS Model MANAGEMENT STUDIES Page 16 recommendations are phased in by the m ed requirements to more refined and en developed for each risk category by for banks that do own bespoke risk measurement systems th banking industry it will move fro specific requirements that have be each individual bank. The upside is that they will be rewarded wi

potentially lower risk capital requirements. In future there will be closer links between the Mandates increased minimum public disclosure of banks risk information. Market Disclosure PILLAR - III Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 17 The standardized approach sets out specific risk weights for certain types of cr edit risk. The standard risk weight categories are used under Basel 1 and are 0% fo r short term government bonds, 20% for exposures to OECD Banks, 50% for residential mortgages and 100% weighting on commercial loans. A new 150% rating comes in for b orrowers with poor credit ratings. The minimum capital requirement (the percentage of risk weighted assets to be held as capital) has remains at 8%. For those Banks that decide to adopt the standardized ratings approach they wi ll be forced to rely on the ratings generated by external agencies. Certain Banks are develop ing the IRB approach as a result. The Second Pillar The second pillar deals with the regulatory response to the first pil lar, giving regulators much improved tools over those available to them under Basel I. It also provides a framework for dealing with all the other risks a bank may face, such as systemic risk, pension risk, concentration risk, strategic risk, reputation risk, liqui dity risk and legal risk, which the accord combines under the title of residual risk. It gives banks a pow er to review their risk management system. The Third Pillar The third pillar greatly increases the disclosures that the bank must make. This is designed to allow the market to have a better picture of the overall risk po sition of the bank and to allow the counterparties of the bank to price and deal appropriately. The new Ba sel Accord has its foundation on three mutually reinforcing pillars that allow ba nks and bank supervisors to evaluate properly the various risks that banks face and realign regulatory capital more closely with underlying risks. The first pillar is compatible with the credit risk, market risk and operational risk. The regulatory capital will be focused on thes e three risks. The second pillar gives the bank responsibility to exercise the best ways to man age the risk specific to that bank. Concurrently, it also casts responsibility on the supervi

sors to review and validate banks risk measurement models. The third pillar on market discipline is used to leverage the influence that other market players can bring. This is aimed at improving the transparency in banks and improves reporting. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 18

Chapter 2 INTRODUCTION OF THE BANKS UNDER THE STUDY Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 19 2.1) AXIS Bank Axis Bank was the first of the new private banks to have begun operations in 199 4, after the Government of India allowed new private banks to be established. The Bank was pr omoted jointly by the Administrator of the specified undertaking of the Unit Trust of I ndia (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corpora tion of India (GIC) and other four PSU insurance companies, i.e. National Insurance Company Lt d., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. The Bank today is capitalized to the extent of Rs. 401.95 crore with the public holding (other than promoters) at 53.23%. The Banks Registered Office is at Ahmedabad and its Central Office is located a t Mumbai. The Bank has a very wide network of more than 905 branches and Extension Counter s (as on 30th September 2009). The Bank has a network of over 3894 ATMs ( as on 30th September 2009) providing 24 hrs a day banking convenience to its customers. Thi s is one of the largest ATM networks in the country. The Bank has strengths in both retail and corporate banking and is c

ommitted to adopting the best industry practices internationally in order to achieve excellence. Board of Directors The members of the Board are: Smt. Shikha Sharma Managing Director & CEO Shri M. M. Agrawal Deputy Managing Director (Designate) Shri N.C. Singhal Director Shri J.R. Varma Director Dr. R.H. Patil Director Smt. Rama Bijapurkar Director Shri R.B.L. Vaish Director Shri M.V. Subbiah Director Shri K. N. Prithviraj Director Shri V. R. Kaundinya Director Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 20 Mission Customer Service and Product Innovation tuned to diverse needs of in dividual and corporate clientele. Continuous technology up gradation while maintaining human values. Progressive globalization and achieving international standards. Efficiency and effectiveness built on ethical practices. Core Values Customer Satisfaction through providing quality service effectively and effici ently. "Smile, it enhances your face value" is a service quality stressed on Periodi c Customer Service. Audits Maximization of Stakeholder value Success through Teamwork, Int egrity and People. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 21 2.2) BANK OF INDIA Bank of India was founded on 7th September, 1906 by a group of emin ent businessmen from Mumbai. The Bank was under private ownership and control till Ju ly 1969 when it was nationalized along with 13 other banks. Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid growth over the years and blossomed into a mighty institution with a strong national presence and sizable international o perations. In business volume, the Bank occupies a premier position among the nationalised banks. The Bank has 3101 branches in India spread over all states/ union territories in cluding 141 specialized branches. These branches are controlled through 48 Zonal Offices . T here are 29

branches/ offices (including three representative offices) abroad. The Bank came out with its maiden public issue in 1997 and follow o n Qualified Institutions Placement in February 2008. . Total number of shareholders as on 30 /09/2009 is Rs. 2,15,790. While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront of introducing various innovative services and systems. Busine ss has been conducted with the successful blend of traditional values and ethics a nd the most modern infrastructure. The Bank has been the first among the nationalized banks to esta blish a fully computerized branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. The Bank is also a Founder Member of SWIFT in India. It pioneered the intr oduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio. The Banks association with the capital market goes back to 1921 when it entered into an agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is an association that has blossomed into a joint venture with BSE, called the BOI Shareholding Ltd. to extend depository services to the stock broking c ommunity. Bank of India was the first Indian Bank to open a branch outside the country , at London, in 1946, and also the first to open a branch in Europe, Paris in 1974. The Bank has sizab le presence abroad, with a network of 29 branches (including five representative offices) at key banking and financial centers viz. London, Newyork, Paris, Tokyo, Hong-Kong and Singapor e. The international business accounts for around 17.82% of Banks total business. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 22 Mission "To provide superior, proactive banking services to niche markets globally, whil e providing cost-effective, responsive services to others in our role as a develop ment bank, and in so doing, meet the requirements of our stakeholders". Vision "To become the bank of choice for corporate, medium businesses and up market retail customers and to provide cost effective developmental banking for small business, mass market and rural markets" Board of Directors: The members of the Board are: Shri. Alok Kumar Misra Chairman & Managing Director Shri B. A. Prabhakar Executive Director

Shri M. Narendra Executive Director Shri Tarun Bajaj Govt. Nominee Director Shri A.V.Sardesai RBI Nominee Director Shri A.K.Motayed Officer Employee Director Shri K. S. Sampath Part-Time Non-Official Director Shri Indresh Vikram Singh Part-Time Non-Official Director Shri M.N. Gopinath Shareholder Director Shri Prakash P. Mallya, Shareholder Director Shri P.M. Sirajuddin Shareholder Director Dr. Shantaben Chavda Part-time Non-Official Director

Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 23 2.3) THE GANDHIDHAM CO-OPERATIVE BANK LTD. The oldest Bank at Gandhidham Established by the Founder of the city for Small But ultimately made Big by you all. Its Milestones:Oldest bank in Gandhidham Township established in 1951. Fully Computerized and Centrally Air Conditioned premises. Divided Track Record: -15% continuously since 15 years (Max. permissi ble) Audit Classification A since 15 years. Total Advance Rs.72.79 Crores. Share Capital Rs.4.94 Crores. Profit before Income Tax Rs.2.33 Crores. Total Deposit Rs.125.63 Crores. Working Capital Rs. 4.94 Crores. Reserves and Surplus Rs. 24.58 Crores. Facilities Offered to The Valued Share Holders and Depositors: Prizes/Scholarship to Children of Shareholders. Medical Facility to Shareholders. A lump sum grant of Rs. 10,000/- on unfortunate death of a Shareholder. In case of unfortunate death of Shareholder in Accident, a lump sum grant of Rs.50,000/Personalized service and attractive Saving Scheme. Safe Deposit Locker Facility at Head Office and Branch Office. Special Interest Rates for Senior Citizens. D.D. Facility for locations all over India. Facility of collection of Electricity (PGVCL) Bills & Modern School Fees. Deposit up to Rs.1,00,000/- is insured with the Deposit Insurance and Credit G uarantee Corporation. Franking Machine facility available at Gandhidham Branch for payment of Stamp Duty. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 24 0% Interest Loan under Scheme Flood IT KG TO PG To contribute towards computer literacy, Gujarat Urban Co-operative Bank federation launched 0 % Interest loan scheme for purchase of Computers/Laptops on

discounted rate under FLOOD IT KG TO PG and the honorable chief minister Narendra Modi on 10th F eb. 2009 inaugurated the same. This facility is granted to the banks shar eholders as well as customers for purchase of computer/laptops for their childrens. Welfare Activities and Programmed for the Valued Shareholders Under the Benevolent Programmed of welfare of members, the bank had introduced a scheme, according to which in the event of the death of the sharehol ders, who had remained continuously the member of the bank for the last four ye ars, the family of deceased will be paid a lump sum grant of Rs. 10,000 by the Bank and Rs 50,00 0 will be granted in the case of an accidental death. During the year, 68 shareholders have been granted the benefit under above scheme and the total expenditure incur red during the year was Rs. 8,00,000. The bank has increased a number of medical centers to enable member to avail s ervices from their nearby places in case of Nil. The total expenditure incurr ed during the year on the medical aid was Rs. 8,30,000. It has been banks endeavor to encourage the children of Shareholders in their a cademic pursuits. In this context the cash prizes are awarded every year to the meritorious students who secure highest marks in SSC and higher examination. The scheme of payment of scholarship to the excel student has also been liberalized. Accordingly, the children of shareholders studying after 12 th up to graduate anywhere in India are also entitled to get the benefit of scholarship. As usual, this year too, the bank has significantly contributed and encouraged social, religious and other activities in the form of donation, prizes, and advertisemen t etc. for the benefit of general public of Adipur/Gandhidham Township. Technology Development Due to up-gradation of software of the computers of the Banks it has been possib le to link both Adipur/Gandhidham branch online (Core Banking Solution). After this up-grad ation, the customers will be able to transact at any of the branches for a ccount maintain whether HO or Branch which leads to the saving of Time and Energy of all v alued customers, shareholders and Depositors. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 25

Chapter 3 CAMELS FRAMEWORK Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 26 CAMELS FRAMEWORK During an on-site bank exam, supervisors gather private information, su ch as details on problem loans, with which to evaluate a banks financial condition and to monitor its compliance with laws and regulatory policies. A key product of such a n exam is a supervisory rating of the banks overall condition, commonly referred t o as a CAMELS rating. The acronym "CAMEL" refers to the five components of a banks condition that are assessed: Capital adequacy, Asset quality, Management, Earnings, and Liq uidity. A sixth component, a banks Sensitivity to market risk was added in 1997; hence the acro nym was changed to CAMELS. CAMELS is basically a ratio-based model for evaluating the performance of banks. Various ratios forming this model are explained below: 3.1) C- Capital Adequacy: Capital base of financial institutions facilitates depositors in forming their risk perception about the institutions. Also, it is the key parameter for financial m anagers to maintain adequate levels of capitalization. Moreover, besides absorbing unanticipa ted shocks, it signals that the institution will continue to honor its obligations. T he most widely used indicator of capital adequacy is capital to risk-weighted assets ratio (CRWA). A ccording to Bank Supervision Regulation Committee (The Basle Committee) of Bank for Interna tional Settlements, a minimum 9 percent CRWA is required. Capital adequacy ultimately determines how well financial institutions c an cope with shocks to their balance sheets. Thus, it is useful to track capital-a dequacy ratios that take into account the most important financial risksforeign exchange, credit, and interest rate risksby assigning risk weightings to the institutions assets. A sound capital base strengthens confidence of depositors. This ratio is used to protect depositors and promote the stability and efficiency of financial system s around the world. The following ratios measure capital adequacy:

Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 27 Capital Risk Adequacy Ratio: CRAR is a ratio of Capital Fund to Risk Weighted Assets. Reserve Bank of India p rescribes Banks to maintain a minimum Capital to risk-weighted Assets Ratio (CRA R) of 9 % with regard to credit risk, market risk and operational risk on an ongoing basis, as against 8 % prescribed in Basel documents. Total capital includes tier-I capital and Tier-II capital. Tier-I capital includ es paid up equity capital, free reserves, intangible assets etc. Tier-II capital includes long term unsecured loans, loss reserves, hybrid debt capital instruments etc. The higher the CRAR, the stronger is considered a bank, as it ensures high safety against bankruptcy. CRAR = Capital/ Total Risk Weighted Credit Exposure Debt Equity Ratio: 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. This i s calculated as the proportion of total asset liability to net worth. Outside liability incl udes total borrowing, deposits and other liabilities. Net worth includes equity capital and reserve and surplus. Higher the ratio indicates less protection for the creditors and depos itors in the banking system. Borrowings/ (Share Capital + reserves) Total Advance to Total Asset Ratio: This is the ratio of the total advanced to total asset. This ratio indicates banks aggressiveness in lending which ultimately results in better profitabili ty. Higher ratio of advances of bank deposits (assets) is preferred to a lower one. Total advances a lso include receivables. The value of total assets is excluding the revolution of all the as sets. Total Advances/ Total Asset Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 28 Government Securities to Total Investments: The percentage of investment in government securities to total investme nt is a very important indicator, which shows the risk taking ability of the bank. It indicates a banks strategy as being high profit high risk or low profit low risk. It also gives a view as to the availability of alternative investment opportunities. Government securitie

s are generally considered as the most safe debt instrument, which, as a result, carr ies the lowest return. Since government securities are risk free, the higher the government security to investment ratio, the lower the risk involved in a banks investments. Government Securities/ Total Investment 3.2) A Asset Quality: Asset quality determines the healthiness of financial institutions against loss of value in the assets. The weakening value of assets, being prime source of banking problems, directly pour into other areas, as losses are eventually written-off against ca pital, which ultimately expose the earning capacity of the institution. With this backdrop, th e asset quality is gauged in relation to the level and severity of non-performing assets, adequacy of provisions, recoveries, distribution of assets etc. Popular indicators i nclude nonperforming loans to advances, loan default to total advances, and recoveries to loan defaul t ratios. The solvency of financial institutions typically is at risk when their assets be come impaired, so it is important to monitor indicators of the quality of their assets in terms of overexposure to specific risks, trends in nonperforming loans, and the health and profitability of bank borrowers especially the corporate sector. Share of bank assets in the aggregate financial sector assets: In most emerging markets, banking sector assets comprise well over 80 per cent of total financial sector assets, whereas these figures are much lower in t he developed economies. Furthermore, deposits as a share of total bank liabilities have declined since 1990 in many developed countries, while in developing countries public deposits continue to be dominant in banks. In India, the share of banking assets in total financia l sector assets is around 75 per cent, as of end-March 2008. There is, no doubt, me rit in recognizing the importance of diversification in the institutional and instrument-specific aspec ts of financial intermediation in the interests of wider choice, competition and stabil ity. However, the dominant role of banks in financial intermediation in emerging economies and par ticularly Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 29 in India will continue in the medium-term; and the banks will continue to be spec ial for a long time. In this regard, it is useful to emphasize the dominance of banks in t he developing countries in promoting non-bank financial intermediaries and services in cluding in development of debt-markets. Even where role of banks is apparently di

minishing in emerging markets, substantively, they continue to play a leading role in non-banking financing activities, including the development of financial markets. One of the indicators for asset quality is the ratio of non-performin g loans to total loans. Higher ratio is indicative of poor credit decision-making. NPA: Non-Performing Assets: Advances are classified into performing and non-performing advances (NPA s) as per RBI guidelines. NPAs are further classified into sub-standard, doubtful and loss ass ets based on the criteria stipulated by RBI. An asset, including a leased asset, b ecomes nonperforming when it ceases to generate income for the Bank. An NPA is a loan or an advance where: 1. Interest and/or installment of principal remains overdue for a period of mor e than 90 days in respect of a term loan; 2. The account remains "out-of-order in respect of an Overdraft or Cash Credit (OD/CC); 3. The bill remains overdue for a period of more than 90 days in case of bills purchased and discounted; 4. A loan granted for short duration crops will be treated as an NPA if the ins tallments of principal or interest thereon remain overdue for two crop seasons; and 5. A loan granted for long duration crops will be treated as an NPA if the inst allments of principal or interest thereon remain overdue for one crop season. The Bank classifies an account as an NPA only if the interest imposed during any quarter is not fully repaid within 90 days from the end of the relevant quarter . This is a key to the stability of the banking sector. There should be no hesitation in sta ting that Indian banks have done a remarkable job in containment of non-performing loans (NPL) consider ing the overhang issues and overall difficult environment. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 30 The following ratios are necessary to assess the asset quality. Gross NPA ratio: This ratio is used to check whether the banks gross NPAs are increasing quarter on quarter or year on year. If it is, indicating that the bank is adding a fr esh stock of bad loans. It would mean the bank is either not exercising enough caution when offering loans or is too lax in terms of following up with borrowers on timely repayments. Gross NPA/ Total Loan Net NPA ratio: Net NPAs reflect the performance of banks. A high level of NPAs suggests high pr obability of a large number of credit defaults that affect the profitability and net-worth of banks and

also wear down the value of the asset. Loans and advances usually represent the largest asset of most of the banks. It monitors the quality of the banks loan portfolio. The higher the ratio, the higher the credit s risk. Net NPA/ Total Loan 3.3) M Management: Management of financial institution is generally evaluated in terms of capital adequacy, asset quality, earnings and profitability, liquidity and risk sensitivit y ratings. In addition, performance evaluation includes compliance with set norms, ability to p lan and react to changing circumstances, technical competence, leadership and administrative abil ity. Sound management is one of the most important factors behind financial institutions performance. Indicators of quality of management, however, are primarily applicable to individual institutions, and cannot be easily aggregated across the sec tor. Furthermore, given the qualitative nature of management, it is difficult to judge its soundness just by looking at financial accounts of the banks. Nevertheless, total advance to total deposit, business per employee and profit p er employee helps in gauging the management quality of the banking institutions. S everal indicators, however, can jointly serveas, for instance, efficiency measures doas an indicator of Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 31 management soundness. The ratios used to evaluate management efficiency are desc ribed as under: Total Advance to Total Deposit Ratio: This ratio measures the efficiency and ability of the banks management in converting the deposits available with the banks (excluding other funds like equity c apital, etc.) into high earning advances. Total deposits include demand deposits, saving deposits, term deposit and deposit of other bank. Total advances also include the receivables. Total Advance/ Total Deposit Business per Employee: Revenue per employee is a measure of how efficiently a particular ban k is utilizing its employees. Ideally, a bank wants the highest business per employee possible, as it denotes higher productivity. In general, rising revenue per employee is a positive sign that suggests the bank is finding ways to squeeze more sales/revenues out of each of its emplo yee. Total Income/ No. of Employees Profit per Employee: This ratio shows the surplus earned per employee. It is arrived at by dividing p rofit after tax

earned by the bank by the total number of employee. The higher the ratio shows good efficiency of the management. Profit after Tax/ No. of Employees 3.4) E Earning & Profitability: Earnings and profitability, the prime source of increase in capital ba se, is examined with regards to interest rate policies and adequacy of provisioning. In add ition, it also helps to support present and future operations of the institutions. The single best indicator used to gauge earning is the Return on Assets (ROA), which is net income after taxes to total asset ratio. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 32 Strong earnings and profitability profile of banks reflects the ability to suppo rt present and future operations. More specifically, this determines the capacity to a bsorb losses, finance its expansion, pay dividends to its shareholders, and build up an ade quate level of capital. Being front line of defense against erosion of capital base from loss es, the need for high earnings and profitability can hardly be overemphasized. Although differ ent indicators are used to serve the purpose, the best and most widely used indicator i s Return on Assets (ROA). However, for in-depth analysis, another indicator Interest Income to To tal Income and Other income to Total Income is also in used. Compared with most other indicator s, trends in profitability can be more difficult to interpretfor instance, unusually high p rofitability can reflect excessive risk taking. The following ratios try to assess the qualit y of income in terms of income generated by core activity income from landing operations. Dividend Payout Ratio: Dividend payout ratio shows the percentage of profit shared with the shareholders. The more the ratio will increase the goodwill of the bank in the share market. Dividend/ Net profit Return on Asset: Net profit to total asset indicates the efficiency of the banks in u tilizing their assets in generating profits. A higher ratio indicates the better income generati ng capacity of the assets and better efficiency of management in future. Net Profit/ Total Asset Operating Profit by Average Working Fund: This ratio indicates how much a bank can earn from its operations ne t of the operating expenses for every rupee spent on working funds. Average working funds are the total resources (total assets or total liabilities) employed by a bank. It is daily average of total

assets/ liabilities during a year. The higher the ratio, the better it is. This ratio determines the operating profits generated out of working fund employed. The better u tilization of the Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 33 funds will result in higher operating profits. Thus, this ratio will indicate how a bank has employed its working funds in generating profits. Operating Profit/ Average Working Fund Net Profit to Average Asset: Net profit to average asset indicates the efficiency of the banks in utilizing their assets in generating profits. A higher ratio indicates the better income generati ng capacity of the assets and better efficiency of management. It is arrived at by divid ing the net profit by average assets, which is the average of total assets in the current year and previous year. Thus, this ratio measures the return on assets employed. Higher ratio indicates better earning potential in the future. Net Profit/ Average Asset Interest Income to Total Income: Interest income is a basic source of revenue for banks. The interest income total income indicates the ability of the bank in generating income from its lending. In othe r words, this ratio measures the income from lending operations as a percentage of the total income generated by the bank in a year. Interest income includes income on advances, interest on deposits with the RBI, and dividend income. Interest Income/ Total Income Other Income to Total Income: Fee based income account for a major portion of the banks other incom e. The bank generates higher fee income through innovative products and adapting th e technology for sustained service levels. The higher ratio indicates increasing proporti on of fee-based income. The ratio is also influenced by gains on government securities , which fluctuates depending on interest rate movement in the economy. Other Income/ Total Income Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 34 3.5) L Liquidity: An adequate liquidity position refers to a situation, where institution can obtain sufficient funds, either by increasing liabilities or by converting its assets quickly at a reasonable cost. It is, therefore, generally assessed in terms of overall assets and l

iability management, as mismatching gives rise to liquidity risk. Efficient fund management ref ers to a situation where a spread between rate sensitive assets (RSA) and rate sensitive liabilities (RSL) is maintained. The most commonly used tool to evaluate interest rate expo sure is the Gap between RSA and RSL, while liquidity is gauged by liquid to total asset ratio. Initially solvent financial institutions may be driven toward closure by poor ma nagement of short-term liquidity. Indicators should cover funding sources and captur e large maturity mismatches. The term liquidity is used in various ways, all relating to availabi lity of, access to, or convertibility into cash. An institution is said to have liquidity if it can easily meet its needs for cash either because it has cash on hand or can otherwise raise or borr ow cash. A market is said to be liquid if the instruments it trades can easily be bought or sold in quantity with little impact on market prices. An asset is said to be liquid if the market for that asset is liquid. The common theme in all three contexts is cash. A corporation is liq uid if it has ready access to cash. A market is liquid if participants can easily convert positions into cash or conversely. An asset is liquid if it can easily be converted to cash. The liquidity of an institution depends on: The institutions short-term need for cash; Cash on hand; Available lines of credit; The liquidity of the institutions assets; The institutions reputation in the marketplacehow willing will counter party is to transact trades with or lend to the institution? The ratios suggested to measure liquidity under CAMELS Model are as follows: Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 35 Liquidity Asset to Total Asset: Liquidity for a bank means the ability to meet its financial obligati ons as they come due. Bank lending finances investments in relatively illiquid assets, but it fund its loans with mostly short term liabilities. Thus one of the main challenges to a bank i s ensuring its own liquidity under all reasonable conditions. Liquid assets include ca sh in hand, balance with the RBI, balance with other banks (both in India and abroad), a nd money at call and short notice. Total asset include the revaluations of all the assets. The proportion of liquid asset to total asset indicates the overall liquidity position of the bank. Liquidity Asset/ Total Asset Government Securities to Total Asset: Government Securities are the most liquid and safe investments. This r

atio measures the government securities as a proportion of total assets. Banks invest in governmen t securities primarily to meet their SLR requirements, which are around 25% of net demand and time liabilities. This ratio measures the risk involved in the assets hand by a bank. Government Securities/ Total Asset Approved Securities to Total Asset: Approved securities include securities other than government securities. This ra tio measures the Approved Securities as a proportion of Total Assets. Banks invest in approve d securities primarily after meeting their SLR requirements, which are around 25% of net de mand and time liabilities. This ratio measures the risk involved in the assets hand by a bank. Approved Securities/ Total Asset Liquidity Asset to Demand Deposit: This ratio measures the ability of a bank to meet the demand from d eposits in a particular year. Demand deposits offer high liquidity to the depositor and hence banks have to invest these assets in a highly liquid form. Liquidity Asset/ demand Deposit Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 36 Liquidity Asset to Total Deposit: This ratio measures the liquidity available to the deposits of a bank. Total dep osits include demand deposits, savings deposits, term deposits and deposits of other financial institutions. Liquid assets include cash in hand, balance with the RBI, balance with other ban ks (both in India and abroad), and money at call and short notice. Liquidity Asset/ Total Deposit 3.6) S Sensitivity to Market Risk: It refers to the risk that changes in market conditions could adverse ly impact earnings and/or capital. Market Risk encompasses exposures associated with change s in interest rates, foreign exchange rates, commodity prices, equity prices, etc. While all o f these items are important, the primary risk in most banks is interest rate risk (IRR), which will be the focus of this module. The diversified nature of bank operations makes them vulnerable to various kinds of financial risks. Sensitivity analysis reflects institutions expo sure to interest rate risk, foreign exchange volatility and equity price risks (these r isks are summed in market risk). Risk sensitivity is mostly evaluated in terms of managements ability to monitor a nd control market risk. Banks are increasingly involved in diversified operations, all of which are subject to market risk, particularly in the setting of interest rates

and the carrying out of foreign exchange transactions. In countries that allow banks to make trades in s tock markets or commodity exchanges, there is also a need to monitor indicators of equity and commodity price risk. Interest Rate Risk Basics: In the most simplistic terms, interest rate risk is a balancing act. Banks are t rying to balance the quantity of reprising assets with the quantity of repricing liabilities. For example, when a bank has more liabilities repricing in a rising rate environment th an assets repricing, the net interest margin (NIM) shrinks. Conversely, if your bank is asset sensitive in a rising interest rate environment, your NIM will improve because you have more assets re pricing at higher rates. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 37 Liquidity risk is financial risk due to uncertain liquidity. An institution migh t lose liquidity if its credit rating falls, it experiences sudden unexpected cash outflows, or s ome other event causes counterparties to avoid trading with or lending to the institut ion. A firm is also exposed to liquidity risk if markets on which it depends are subject to loss of liquidity. Liquidity risk tends to compound other risks. If a trading organization has a position in an illiquid asset, its limited ability to liquidate that position at shor t notice will compound its market risk. Suppose a firm has offsetting cash flows with two different counter parties on a given day. If the counterparty that owes it a payment defaults, the firm will have to raise cash from other sources to make its payment. Should it be unable to do so, it to o we default. Here, liquidity risk is compounding credit risk. Accordingly, liquidity risk has to be managed in addition to market, credit and other risks. Because of its tendency to compound other risks, it is difficult or impossible to isolate liquidity risk. In all but the most simple of circumstances, comprehen sive metrics of liquidity risk dont exist. Certain techniques of asset-liability management can be applied to assessing liquidity risk. If an organizations cash flows are largely contingent , liquidity risk may be assessed using some form of scenario analysis. Construct multip le scenarios for market movements and defaults over a given period of time. Assess day -today cash flows under each scenario. Because balance sheets differed so significantly from one o rganization to the next, there is little standardization in how such analyses are implemente d.

Regulators are primarily concerned about systemic implications of liquid ity risk. Business activities entail a variety of risks. For convenience, we distinguish between different categories of risk: market risk, credit risk, liquidity risk, etc. Although such categorization is convenient, it is only informal. Usage and definitions vary. Boundaries between categories are blurred. A loss due to widening credit spreads may reasonably be called a ma rket loss or a credit loss, so market risk and credit risk overlap. Liquidity risk compounds other risks, such as market risk and credit risk. It cannot be divorced from the risks it com pounds. An important but somewhat ambiguous distinguish is that between market risk and business risk. Market risk is exposure to the uncertain market value of a por tfolio. Business risk is exposure to uncertainty in economic value that cannot be mark-to-market . The distinction between market risk and business risk parallels the distinction between market-value accounting and book-value accounting. The distinction between market ris k and business Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 38 risk is ambiguous because there is a vast "gray zone" between the tw o. There are many instruments for which markets exist, but the markets are illiquid. Mark-to-marke t values are not usually available, but mark-to-model values provide a more-or-less accurate reflection of fair value. Do these instruments pose business risk or market risk ? The decision is important because firms employ fundamentally different techniques for ma naging the two risks. Business risk is managed with a long-term focus. Techniques include th e careful development of business plans and appropriate management oversight. Book -value accounting is generally used, so the issue of day-to-day performance i s not material. The focus is on achieving a good return on investment over an extended horizon. Mark et risk is managed with a short-term focus. Long-term losses are avoided by avoiding losses from one day to the next. On a tactical level, traders and portfolio managers employ a va riety of risk metrics duration and convexity, the Greeks, beta, etc.to assess their ex posures. These allow them to identify and reduce any exposures they might consider excessive. O n a more strategic level, organizations manage market risk by applying risk limi ts to traders or portfolio managers activities. Increasingly, value-at-risk is being used to def ine and monitor

these limits. Some organizations also apply stress testing to their portfolios. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 39

Chapter 4 LITERATURE REVIEW

Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 40 4.1) CAMEL rating system (Keeley and Gilbert) This study uses the capital adequacy component of the CAMEL rating sy stem to assess whether regulators in the 1980s influenced inadequately capitalized banks to imp rove their capital. Using a measure of regulatory pressure that is based on publ icly available information, he found that inadequately capitalized banks responded to regulator s demands for greater capital. This conclusion is consistent with that reached by Keeley ( 1988). Yet, a measure of regulatory pressure based on confidential capital adequacy rat ings reveals that capital regulation at national banks was less effective than at state-chart ered banks. This result strengthens a conclusion reached by Gilbert (1991) 4.2) Banks performance evaluation by CAMEL model (Hirtle and Lopez) Despite the continuous use of financial ratios analysis on banks performance eva luation by banks regulators, opposition to it skill thrive with opponents coming up with new tools capable of flagging the over-all performance ( efficiency) of a bank. This research paper was carried out; to find the adequacy of CAMEL in capturing the overall performa nce of a bank; to find the relative weights of importance in all the factors in CAMEL; an d lastly to

inform on the best ratios to always adopt by banks regulators in eva luating banks efficiency. In addition, the best ratios in each of the factors in CAMEL were i dentified. For example, the best ratio for Capital Adequacy was found to be the ratio of total sharehol ders fund to total risk weighted assets. The paper concluded that no one factor in CAMEL suffices to depict the overall performance of a bank. Among other recommendations, banks re gulators are called upon to revert to the best identified ratios in CAMEL whe n evaluating banks performance. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 41 4.3) CAMEL model examination (Rebel Cole and Jeffery Gunther) To assess the accuracy of CAMEL ratings in predicting failure, Rebel Cole and Jeffery Gunther use as a benchmark an off-site monitoring system based on pub licly available accounting data. Their findings suggest that, if a bank has not been examined fo r more than two quarters, off-site monitoring systems usually provide a more accura te indication of survivability than its CAMEL rating. The lower predictive accuracy for CAMEL ratings "older" than two quarters causes the overall accuracy of CAMEL ratings to fall s ubstantially below that of off-site monitoring systems. The higher predictive accuracy of off-site systems derives from both t heir timeliness-an updated off-site rating is available for every bank in every quarter-a nd the accuracy of the financial data on which they are based. Cole and Gunther conclude that off-site monitoring systems should continue to play a prominent role in the supervisory p rocess, as a complement to on-site examinations. 4.4) Check the Risk taken by banks by CAMEL model The deregulation of the U.S. banking industry has fostered increased competition in banking markets, which in turn has created incentives for banks to operate more efficien tly and take more risk. They examine the degree to which supervisory CAMEL ratings reflect th e level of risk taken by banks and the risk-taking efficiency of those banks (i.e., whet her increased risk levels generate higher expected returns). Their results suggest that superv isors not only distinguish between the risk-taking of efficient and inefficient banks, but they also permit efficient banks more latitude in their investment strategies than inefficient ba nks.

4.5) Bank soundness - CAMEL ratings Indonesia (Kenton Zumwalt) This study uses a unique data set provided by Bank Indonesia to exam ine the changing financial soundness of Indonesian banks during this crisis. Bank Indone sias non-public CAMEL ratings data allow the use of a continuous bank soundness measu re rather than ordinal measures. In addition, panel data regression procedures that al low for the identification of the appropriate statistical model are used. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 42 They argue the nature of the risks facing the Indonesian banking comm unity calls for the addition of a systemic risk component to the Indonesian ranking system . The empirical results show that during Indonesias stable economic periods, four of the five traditional CAMEL components provide insights into the financial soundness of Indon esian banks. However, during Indonesias crisis period, the relationships between fin ancial characteristics and CAMEL ratings deteriorate and only one of the trad itional CAMEL componentsearningsobjectively discriminates among the ratings. 4.6) CAMELs and Banks Performance Evaluation (Muhammad Tanko) Despite the continuous use of financial ratios analysis on banks performance eva luation by banks regulators, opposition to it skill thrive with opponents coming up with new tools capable of flagging the over-all performance ( efficiency) of a bank. This research paper was carried out; to find the adequacy of CAMEL in capturing the overall performa nce of a bank; to find the relative weights of importance in all the factors in CAMEL; an d lastly to inform on the best ratios to always adopt by banks regulators in eva luating banks efficiency. The data for the research work is secondary and was colle cted from the annual reports of eleven commercial banks in Nigeria over a period of nine years (1997 - 2005). The purposive sampling technique was used. The findings revealed the i nability of each factor in CAMEL to capture the holistic performance of a bank. Also revealed, was the relative weight of importance of the factors in CAMEL which resulted to a call f or a change in the acronym of CAMEL to CLEAM. In addition, the best ratios in each of the fa ctors in CAMEL were identified. The paper concluded that no one factor in CAME L suffices to depict the overall performance of a bank. Among other recommendations, banks re gulators are called upon to revert to the best identified ratios in CAMEL whe n evaluating banks

performance. When we were searching for the research paper for literature review, we could not find a single report or any research paper on the CAMELS model prepared on India n Banks. Though it may be prepared by them but we have not found. So we inspired t o make the project report on CAMELS Model specially on Indian Banks. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 43

Chapter 5 OBJECTIVE & METHODOLOGY Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 44 5.1) Objectives of the Study To understand the financial performance of the banks. To describe the CAMELS model of ranking, banking institutions, so as to analyze the comparative of various banks. To analyze the banks performance through CAMEL model and give sugges tion for improvement if necessary. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 45 5.2) Methodology Adopted 5.2.1) Research Design: To achieve our objective we have done descriptive research. We have selected three banks for our study. Private Sector Bank AXIS Bank Public Sector Bank Bank of India Co-operative Bank Gandhidham Co-operative Bank The period for evaluating performance through CAMELS in this study is five yea rs, i.e. from financial year 2004-05 to 2008-09. The data is collected fr om various sources as follows. Primary Data: Primary data collected from the Banks Balance Sheets, Profit & Loss st

atements and also by taking personal visit to the employees of the banks. Secondary Data: Secondary data for the ratio analysis & interpretation was collected f rom journals, banks prospectus, banks annual reports and internet. TOLANI INSTITUTE OF To achieve our objective we have calculated following ratios as per CAMEL framework. Capital Risk Adequacy Ratio Debt Equity Ratio Total Advance to Total Asset Government Securities to Total Asset Capital Adequacy Gross NPA to Total Loan Net NPA to Total Loan Asset Quality Total Advance to Total Deposits Business per Employee Profit per Employee Management Dividend Payout Ratio Return on Asset Operating Profit to average Working Fund Net Profit to Average Asset Interest income to Total Income Other Income to Total Income Earnings Liquid Asset to Total Asset Government Security to Total Security Approved Security to Total Security Liquidity Asset to Demand Deposit Liquidity Asset to Total Deposit Liquidity Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES our objective we have calculated following ratios as per CAMEL Capital Risk Adequacy Ratio Debt Equity Ratio Total Advance to Total Asset Government Securities to Total Asset Capital Adequacy Gross NPA to Total Loan Net NPA to Total Loan Asset Quality Total Advance to Total Deposits Business per Employee Profit per Employee Management Dividend Payout Ratio Return on Asset Operating Profit to average Working Fund Net Profit to Average Asset Interest income to Total Income Other Income to Total Income

Liquid Asset to Total Asset Government Security to Total Security Approved Security to Total Security Liquidity Asset to Demand Deposit Liquidity Asset to Total Deposit Rating The Performance of the Bank through CAMELS Model MANAGEMENT STUDIES Page 46 our objective we have calculated following ratios as per CAMEL Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 47 5.3) LIMITATIONS OF THE 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 balan ce sheets. It was not possible to get a personal interview with the top manag ement employees of all banks under study. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 48

Chapter 6 DATA INTERPRETATION AND ANALYSIS Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 49 6.1) DATA INTER PRETATION 6.1.1) Capital Adequacy: Capital Risk Adequacy Ratio: CRAR = Capital Total Risk Weighted Credit Exposure TABLE - 1

Banks 2004 05 2005 06 2006 07 2007 08 2008 09 AXIS Bank 12.66% 11.08% 11.57% 13.73% 13.69% GCB 31.32% 37.75% 37.38% 36.58% 40.56% Bank of India 11.52% 10.75% 11.71% 12.95% 13.21% Interpretation: CRAR is a ratio of Capital Fund to Risk Weighted Assets. Reserve Bank of India p rescribes Banks to maintain a minimum Capital to risk-weighted Assets Ratio (CRA R) of 9 % with regard to credit risk, market risk and operational risk on an ongoing basis, as against 8 % prescribed in Basel documents. Capital adequacy ratio of the AXIS Bank was well with 13.69% for the year 2008 09, above prescribed by RBI. Higher the ratio the banks are in a comfortable position to absorb losses. In 2006 capital has been increased approx. 40% to capital of 2005 and total risk weighted asset increased by approximately 60%. So, CRAR for the year decreased. During 4 years (2006 2009) capital increas ed by 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 2004 05 2005 06 2006 07 2007 08 2008 09 Chart - 1 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 50 approx. 3 times and risk weighted assets increased by approx. 2 times. So ratio of the year 2009 is increased. The reason of increase the ratio for the AXIS Bank in the last year is, the bank has raised capital of 1700 crore, by way of subordinated bonds (unsecured redeemable non-co nvertible debentures) qualifying as Tier II capital. The raising of this non-equ ity capital has helped the Bank continue its growth strategy and has strengthened its capital adequacy ratio. GCB also maintain the higher ratio against prescribed by RBI. In 2005 this ratio is 31.32% and it has increased to 40.56% in 2009. The ratio was increased by 4% in the year 2009 because of increment in share capital of Rs. 10 lakhs. Bank of India has 11.52% CRAR in 2005 and it has increased to 13.21

% in 2009. Total capital of BOI increased by approx. 1.5 times and total weighted asset doubled f rom 2006 to 2009. So, CRAR increased by approx. 3%. The reason of increment in CRAR of Bank of India is, the Bank has raised Rs.400 crore by way of Innovative Perpetual Debt Instrument (IPDI) as Tier I capital and Rs.500 crore by way of Upper Tier II Bonds to strengthen capital adequacy. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 51 Debt-Equity Ratio: Debt-Equity Ratio = Borrowings Share Capital + Reserves TABLE - 2 Banks 2004 05 2005 06 2006 - 07 2007 08 2008 09 AXIS Bank 73.97% 93.34% 153.12% 64.14% 102.98% GCB Nil Nil Nil Nil Nil Bank of India 133.53% 118.26% 112.31% 67.74% 70.30% Interpretation: The Debt to Equity Ratio measures how much money a bank should safel y be able to borrow over long periods of time. Generally, any bank that has a debt to equity ratio of over 40% to 50% should be looked at more carefully to make sure there ar e no liquidity problems. In AXIS Bank, this ratio is more than the expected ratio from 2005 to 2009. In 2008 Axis Bank is showing very less ratio as compared to 2007 because their profit has been increasing by 61% and they have paid their liabilities during the year and vice versa in the year 2009. In GCB there is no borrowing. So the ratio shows nil. In BOI the ratio is 133.53% in the year 2005 and after decreased it reached to 7 0.30% in the year 2009. Since the year 2003 to 2008, there is a continuous increm ent in reserves and surplus so that the ratio was continuously decrease and in the year 2009 there is increment in borrowings so that the ratio was slightly increased. 0.00% 50.00% 100.00% 150.00% 200.00% 2004 05 2005 06 2006 - 07 2007

08 2008 09 Chart - 2 AXIS Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 52 Total Total Total Total Advance to Total Asset Ratio: Advance to Total Asset Ratio = Advance Asset

TABLE - 3 Banks 2004 05 2005 06 2006 07 2007 08 2008 09 AXIS Bank 41.34% 44.87% 50.34% 54.45% 55.21% GCB 34.40% 31.82% 41.75% 51.72% 44.80% Bank of India 58.97% 58.05% 59.97% 63.45% 63.37% Interpretation: Total Advance to Total Asset Ratio shows that how much amount the bank holds aga inst its assets. Here in AXIS Bank, from 2005 to 2009 this ratio is continuously increase d because increase in advances is more than increase in total assets which show s growth in investment. And that is good sign for the bank. During the year, total advances of the Bank grew by 36.70% in the previous year. Of this, corporate advances (comprising large and mid-corporate) increased by 41.98% during the same period, while agricultural lending increased by 49.23%. Retail loans grew 18.10%. 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 2004 05 2005 06 2006 - 07 2007 08 2008 09 Chart-3 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 53 This ratio of GCB has also increased continuously. In the year 2008, the loans & advances were increased by Rs. 27.20 crore so the ratio was increased to 51%. The same wa y because

of decreasing advances during the year 2008-09 the ratio was decreased. In 200 5 this ratio was 34.40% and it has increased to 44.80% in 2009. So this is good sign for GCB. Bank of Indias Total Advances to Total Asset Ratio is continuously inc reasing from 58.97% to 63.37%, which shows the sound condition of the bank. As th e bank is growing the advances and the assets are increased in same proportion. Because of that th e ratio keeps in same rate. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 54 Government Securities to Total Investments: G-sec to Total Investment = Government Securities Total Investment TABLE - 4 Banks 2004 05 2005 06 2006 - 07 2007 08 2008 09 AXIS Bank 52.81% 54.77% 61.09% 59.87% 59.85% GCB 94.58% 96.51% 97.33% 93.64% 76.46% Bank of India 67.90% 69.00% 71.26% 79.02% 80.85% Interpretation: This ratio shows the percent of investment in government securities. It is believed that the more investment in government security is safer. As per norms stipulated by the RBI, the banks have to maintain SLR at the rate of 25%. In AXIS Bank government security Investment increased by approx nd total investment increased by approx 200% during 5 years of 2005 to Particularly in the year 2009 the Banks total investments increased by 37.46% with ments in government and approved securities, held to meet the Banks SLR ement, increasing by 37.41% as a result of the increase in total deposits. 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00% 2004 05 2005 06 2006 - 07 2007 08 2008 09 Chart - 4 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model

250% a 2009. invest requir

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 55 In GCB the ratio was averagely 95% but in the last year it was decreased to 76.4 6% in the year 2009. The ratio was decreased in the year 2009 because of decre ase in investment in government securities by 11 crore. Moreover as against statutory requirement to invest 15% out of 25% of SLR in central government securities the bank has inve sted 100% of SLR requirement in Govt. of India Securities. So, GCB has adequate liquidity as per RBI norms, but it reduces their profitability. In Bank of India the ratio increased from approx 67% to 80%. Because of more inc rement in Government securities to the increment in total asset the ratio is increased. The more investment in government securities shows the good sign of the bank. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 56 6.1.2) Asset Quality Gross NPA ratio: Gross NPA= Gross NPA Total Loan TABLE - 5 Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 1.99% 1.68% 1.14% 0.83% 1.10% GCB 8.98% 7.02% 10.08% 8.33% 8.35% Bank of India 6.49% 4.35% 2.83% 1.99% 1.98% Interpretation: This ratio is used to check whether the banks gross NPAs are increasing quarter on quarter or year on year. If it is, indicating that the bank is adding a fresh stock of bad loans. It would mean the bank is either not exercising enough caution when offering loans or is too lax in terms of following up with borrowers on timely r epayments. In 2005, AXIS Banks gross NPA is 1.99% and it has decreased to 1.10% till 2009. It means this ratio in AXIS Bank is decreased year by year from 2005 to 2009 becaus e AXIS Bank takes enough care of money. But than, we can say that a banks business is making loans and world over, some percentage of the loans always turn bad. 0.00%

2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 2004 05 2005 06 2006 - 07 2007 08 2008 - 09 Chart - 5 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 57 In GCB in the year 2006-07 the Gross NPA was increased by approx 47 % against the increment in total loans was approximately 19%. So, the ratio was increased. But in the last two years as the Gross NPA and loans were increased in the same proportion the ratio has maintained the average of 8%. In Bank of India the ratio is decreased from approx 6.49% to 1.98% which shows t he BOI takes care of their money. Thats why their Gross NPA decreases year by year. Dur ing the year 2009, some impaired assets of Rs.118 crore were sold on bid and Portfolio basis to ARCIL/ASEREC/IFCI/Pegasus ARC Pvt. Ltd. for Rs 89 crore on Cash cum S ecurity Receipt terms. This has helped in reducing Gross NPA and also unlocking funds in old NPA accounts, where there was no scope of immediate realization. Amount received in writtenoff accounts helped in improving the profit. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 58 Net NPA Ratio: Net NPA = Net NPA Total Loan TABLE - 6 Banks 2004 05 2005 06 2006 - 07 2007 08 2008 - 09 AXIS Bank 1.39% 0.98% 0.72% 0.42% 0.40% GCB 3.22% 0.65% 4.10% 3.45% 0% Bank of India 3.19% 1.70% 0.85% 0.61% 0.50% Interpretation: Net NPAs reflects the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also wear down the value of the asset. Loans and advances usually represent

the largest asset of most of the banks. It monitors the quality of the banks loan portfolio. The higher the ratio, the higher the credits risk. Above ratios show the fluctuation of NPA of AXIS Bank during the last 5 years. T he bank has lowest net NPA is 0.40% in 2008-09. Net NPA is continuously decreased from 2 005 to 2009. So it is good for the bank to decrease in NPA. Because of decrease in NPA the risk of bad loans are also decreased. 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 2004 05 2005 06 2006 - 07 2007 08 2008 - 09 Chart - 6 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 59 GCB has been successful to make their NPA at minimum level and there is Zero Net NPA level at the end of the year. Because they started new schemes for granting of credit facilities to all sections of society at large. In Bank of India the NPA ratio is decreased from 3.19% to 0.50%, wh ich shows that they have been successful in recovering their bad loans. In the last year the ratio was decreased by 0.11% because of increment in the provisions. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 60 6.1.3) Management Quality Total Advance to Total Deposit Ratio: Total Advance to Total Deposit = Total Advance Total Deposit TABLE - 7 Banks 2004 05 2005 06 2006 - 07 2007 08 2008 - 09 AXIS Bank 49.20% 55.62% 62.73% 68.08% 69.48% GCB 39.07% 44.14% 53.87% 67.21% 57.94% Bank of India 70.45% 69.38% 71.00% 75.64% 75.33% Interpretation: This ratio shows the

investment of the bank through approving the loans against accepting the loan. In AXIS Bank, the ratio is continuously increasing year by year from 49.20% to 69.48% in year 2005 to 2009. This shows good sign of the bank, if it will be increased more, than it may be risky for the bank. In the year 2009, the ratio is increased a little because of 37% increment in Advances and 34% increment in Deposits. Same in GCB, this ratio is continuously increased from 39.07% to 57.94% in year 2005 to 2009. In the year 2009, the ratio decreased because of increment in Deposits by 10.5 crore. 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 2004 05 2005 06 2006 - 07 2007 08 2008 - 09 Chart - 7 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 61 In Bank of India the ratio is continuously increased from 70.45% in 2005 to 75.6 4% in 2008 and decreased a little to 75.33% in the year 2009. In the year 2009 the ratio is decreased because of approximately 32% increment in Deposits and against that th ere was not any notable deference in advances. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 62 Business per Employee: Business per Employee = Total Income No. of Employees TABLE - 8 (Amount in Rs. Crore) Banks 2004 05 2005 06 2006 07 2007 08 2008 09 AXIS Bank 8.95 10.20 10.24 11.17 10.60 GCB 3.12 2.97 3.31 3.57 3.47 Bank of India 3.20 3.81 4.98 6.52 8.33 Interpretation: Revenue per employee is

a measure of how efficiently a particular bank is utilizing its employees. Ideally, a bank wants the highest business per employee possible, as it denotes higher productivity. In general, rising revenue per employee is a positive sign that suggests the bank is finding ways to squeeze more sales/revenues out of each of its employee. In AXIS Bank, this ratio increases continuously year by year from 8.9 5 crore in the year 2005 to 11.17 crore in year 2008 and in the year 2009, it decreased to 10.60 cro re. Because of less recruitment in the year 2008 the ratio is increased to 11.17 crore other wise the ratio was maintained averagely 10.5 crore during the 5 years. 0 2 4 6 8 10 12 2004 05 2005 06 2006 07 2007 08 2008 09 Chart - 8 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 63 In GCB the ratio was maintained average 3 crore to 3.5 crore during the last 5 y ears. In Bank of India also this ratio increases continuously from 3.2 cror e in the year 2005 to 8.33 crore in the year 2009 which is good. The main reason for this increment is the increase in profit by approximately 49%. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 64 Profit per Employee: Profit per Employee = Net Profit No. of Employees TABLE 9 (Amount in Rs. Lac) Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 7.03 8.69 7.59 8.39 10.02 GCB 3.98 4.30 2.82 4.13 4.40 Bank of India 0.80 1.66 2.71 4.95 7.49

Interpretation: Profit per employee is a measure of how efficiently a particular bank is utilizing its employees. Ideally, a bank wants the highest profit per employee. In AXIS Bank, the profit per employee was 7.03 lakhs in 2005 and it has increased to 10.02 lakhs in 2009 which shows that profit per employee is increased from 2005 to 2009. In GCB the ratio is increased a little from 3.98 lakh in 2005 to 7.49 lakh in 20 09. The ratio was increased in the year 2009 because of increment in Net profit by approximate ly 10.5%. This shows the efficiency of work staff of GCB. In BOI profit per employee is increased from 0.8 lakh in 2005 to 7.49 lakh in 20 09 which is because of more increase in profit than the increment in number of employee. 0 2 4 6 8 10 12 2004 05 2005 06 2006 07 2007 08 2008 - 09 Chart - 9 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 65 6.1.4) Earnings Quality: Dividend Payout Ratio: Dividend Payout Ratio= Dividend Net Profit TABLE - 10 Banks 2004 05 2005 06 2006 07 2007 08 2008 09 AXIS Bank 26.23% 23.20% 22.58% 23.50% 23.16% GCB 27.83% 26.49% 46.08% 33.20% 31.37% Bank of India 16.34% 23.77% 7.62% 12.23% 10.22% Interpretation: Dividend payout ratio shows the percentage of profit shared with the shareholders. The more the ratio will increase the goodwill of the bank in the share market. In AXIS Bank, the average ratio during the five years is approx 24%. They have paid highest dividend in the year 2005. Then, the average was maintained by approximately by 25%. In GCB, though the profit was increased by 23 lakhs, but the share capital was also

increased by 10 lakhs, so the ratio was slightly decreased in the year 2009. In BOI also the ratio is much fluctuated. In 2006, it was highest at 23.77% and minimum in the year 2007 which was 7.62% only. At last it was 10.22% in the year 2009. 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00% 2004 05 2005 06 2006 07 2007 08 2008 - 09 Chart - 10 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 66 Return on Asset: Return on Asset = Net Profit Total Asset TABLE - 11 Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 0.90% 0.98% 0.90% 0.98% 1.23% GCB 1.45% 1.63% 1.01% 1.41% 1.44% Bank of India 0.35% 0.62% 0.79% 1.12% 1.33% Interpretation: Return on Asset Ratio shows that how much return bank can get from their total asset. Higher the ratio is good for the bank. Because if ratio is higher than we can say that the return of bank is high. In AXIS Bank, we can see that in 2005 this ratio is 0.90% and it has increased in 2009 to 1.23%. The main reason for this major change in the ratio is 69% increme nt in Net profit and 39% change in Assets. YoY both of them are increasing in same proport ion but in last year per cent increment in profit was more than the increment in assets. In GCB, in the year 2007-08 because of increment in profit by approx 48% but the re was no major change in the assets so the ratio was increased by 0.40%. And it was maintained in the year 2009. This ratio in BOI increased year by year. In 2005 this ratio is 0.35% and it has increased in 2009 to 1.33%. The ratio was increased in the last year because of 49% increment in net profit against the increase in assets were 34%. It means this is good for BOI to increase the profit from their asset.

0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80% 2004 05 2005 06 2006 07 2007 08 2008 - 09 Chart - 11 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 67 Operating Profit by Average Working Fund: Operating Profit to Avg. Working Fund= Operating Profit Aveiage woiking Funu TABLE - 12 Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 2.04% 2.43% 2.10% 2.57% 2.95% GCB * * * * * Bank of India 1.62% 1.64% 1.88% 2.31% 2.70% * Data not available Interpretation: Earning reflect the growth capacity and the financial health of the bank. High earnings signify high growth prospects. In AXIS Bank, it has increased from 2.04% to 2.95% during the year 2005 to 2009 which is good for the bank. In the last year 2009 the operating profit was increased by 67%. In BOI, it was increased from 1.62% in the year 2005 to 2.70% in th e year 2009 which is good for the bank. Because of 47% increment in the net profit the ratio was incr eased in the year 2009. 0.00% 0.50% 1.00%

1.50% 2.00% 2.50% 3.00% 3.50% 2004 05 2005 06 2006 07 2007 08 2008 - 09 Chart - 12 AXIS Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 68 Net Profit to Average Asset: Net Profit to average Asset= Net Profit Average Asset TABLE - 13 Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 1.21% 1.18% 1.10% 1.24% 1.44% GCB 1.46% 1.58% 1.00% 1.45% 0.75% Bank of India 0.38% 0.68% 0.88% 1.25% 1.49% Interpretation: Net profit to average asset indicates the efficiency of the banks in utilizing their assets in generating profits. A higher ratio indicates the better income generating capacity of the assets and better efficiency of management. In AXIS Bank the ratio is continuously increase year by year from 1.21% in 2005 to 1.44% in the year 2009. This is a good time for Bank to be giving back, for it has just completed a very succe ssful year. Its Net Profit rose 69.50% to Rs. 1,815.36 crore, its assets grew 35%, a nd productivity and efficiency levels (whether measured by Return on Assets or Return on Equity or P rofit per Employee) have risen well over the year. Most of all, the Bank finds itself competitively positioned in several of its key businesses, and this should predict well for th e year ahead. In BOI the ratio was 0.38% in the year 2005 and increased to 1.49% in the year 2 009which is good for the bank. In the year 2009 there was 49% increment in net profit, against that increment in average asset was approximately 37%. Because of that the ratio was increased by 0.24% in the year 2009. 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80%

2004 052005 062006 072007 08 2008 - 09 Chart - 13 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 69 Interest Income to Total Income: Interest Income to Total Income = Interest Income Total Income TABLE - 14 Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 63.75% 59.64% 59.24% 59.02% 56.00% GCB 96.24% 93.92% 96.22% 95.96% 97.09% Bank of India 83.92% 85.58% 85.05% 85.29% 84.29% Interpretation: Interest income to total income ratio shows that how much interest income earn from total income. This ratio was continuously decreased from 2005 to 2009 in AXIS Bank. This shows bad effect in profit from interest in AXIS Bank, because interest income is a regular income from customer. The growth of NII may be attributed to an expansion in the balance sheet size, w ith average earning assets in the year increasing by 48.37% (Rs. 74,589 crore in 2007-08 to Rs. 1,10,664 crore in 2008-09). Although this gain in NII was partly offset by the h ardening of interest rates, particularly in the second half of the financial year, the growth of demand deposits (which on a daily average basis increased by 33.81% to Rs. 34,141 crore from Rs. 25,515 crore in the previous year) helped the Bank contain the cost of funds. 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00% 2004 05 2005 06 2006 07 2007 08 2008 - 09 Chart - 14 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 70 GCB was maintained on an average same percentage from 2005 to 2008. In 2009 it was increased to 97.09%. So, here we can say that GCB was making most of profit from interest

income. So this is good sign for the GCB. In the income statement of BOI most income is from the interest income. Averagel y 85% of the income of BOI is from Interest income, which is from the main b usiness of the bank which is good sign for a bank. In the year 2009 Net interest income grew by 30.0 2% on the backdrop of rise in volume of business mix by 26.30% (from Rs. 2,64, 804 crore to Rs. 334,440 crore). Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 71 Other Other Other Total Income to Total Income: Income to Total Income = than Interest Income Income

TABLE - 15 Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 36.25% 40.36% 40.76% 40.98% 44.00% GCB 3.76% 6.08% 3.78% 4.04% 2.91% Bank of India 16.08% 14.42% 14.95% 14.71% 15.78% Interpretation: Fee based income account for a major portion of the banks other income. The bank generates higher fee income through innovative products and adapting the technology for sustained service levels. The higher ratio indicates increasing proportion of fee-based income. The ratio is also influenced by gains on government securities, which fluctuates depending on interest rate movement in the economy. This ratio in AXIS Bank increased from 36.25% to 44.00% in 2005 to 2009 which shows that AXIS Bank earning from government security and through providing innovative products. In the year other income increased by 63% because of that the ratio wa s increased by 4% in the year 2009 and the main increment was in the fee income. In GCBs income statement, a very small part of income is from income from other than interest income because as we have discussed before that bank invests most of its fund in Government securities. 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00%

50.00% 2004 052005 062006 072007 08 2008 - 09 Chart - 15 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 72 The BOI has averagely 15% part of income is from other way of income which is go od for the bank. In the year 2005-06 the ratio was decreased because of pro portionately more increment in total income than other than interest income vice-versa in the year 2009. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 73 6.1.5) Liquidity: Liquidity Asset to Total Asset: Liquidity Asset to Total Asset = Liquiuity Asset Total Asset TABLE - 16 Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 11.93% 7.32% 9.45% 11.41% 10.17% GCB 11.17% 9.70% 7.67% 5.29% 15.47% Bank of India 7.92% 10.90% 12.27% 9.90% 9.65% Interpretation: Liquidity for a bank means the ability to meet its financial obligations as they come due. Bank lending finances investments in relatively illiquid assets, but it fund its loans with mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its own liquidity under all reasonable conditions. In AXIS Bank this ratio is continuously decreased from 2005 to 2009. In 2005 thi s ratio is 11.93% and it has decreased to 10.17%. The ratio was decreased in the year 2009 because of increment in total assets by approx 35 crore. In GCB this ratio is continuously decreased from 2005 to 2008 but in 2009 it has increased. In 2005 this ratio is 11.17% and it has decreased in 2008 to 5.29% and in 2009 it has 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 2004 05 2005 06 2006 07 2007 08 2008 - 09

Chart - 16 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 74 increased to 15.47%. The reason for this much increment is increment in liquidit y asset of Rs. 18 crore. This ratio in Bank of India was continuously increased. In 2005 this ratio is 7.92% and it has increased to 9.65% in the year 2009. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 75 Government Securities to Total Asset: G-sec to Total Asset = Government Securities Total Asset TABLE - 17 Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 19.97% 23.71% 22.43% 18.42% 18.77% GCB 46.40% 51.18% 45.64% 37.09% 27.13% Bank of India 20.16% 19.53% 17.84% 18.47% 18.86% Interpretation: Government securities to total asset ratio shows that, what percentage of government securities bank has against total assets. Higher the ratio is good for the bank because if this ratio is higher than we can say that bank is more investing in government securities. In AXIS Bank, the ratio is increase from 19.97% in 2005 to 23.71% in 2006 and it decreased to 18.77% in 200 9. In the year 2005, the ratio was highest because the bank has increased inves tment in only government securities but in the last year bank has increased the tot al investment in govt. securities as well as debentures & bonds also. In GCB, the ratio was fluctuating during the five years. At last in the year 2009 the ratio was 27.13%. In the year 2009, the G-sec investment was decreased by 11 crore and the total assets were increased by approximately 13 crore. So, the ratio was de creased. Bank has 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

2004 05 2005 06 2006 07 2007 08 2008 - 09 Chart - 17 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 76 withdrawal their fund from invested in other banks and they have invested into g overnment securities during the previous year. IN BOI this ratio, is continuously decreased from 2005 to 2009. In 2 005, this ratio was 20.16 and it has decreased to 18.86%. In the year 2007, because of less increment in the government securities to the increment of total investment the ratio w as decreased. Vice versa in the year 2009 the ratio was increased. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 77 Approved Securities to Total Asset: Approved Securities to Total Asset = Approved Securities Total Asset TABLE - 18 Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 0 0 0 0 0 GCB 1.01% 1.41% 0.97% 0.82% 0.62% Bank of India 0.87% 0.72% 0.56% 0.41% 0.29% Interpretation: Approved securities include securities other than government securities. This ratio measures the Approved Securities as a proportion of Total Assets. Banks invest in approved securities primarily after meeting their SLR requirements, which are around 25% of net demand and time liabilities. This ratio measures the risk involved in the assets hand by a bank. In AXIS Bank the ratio is 0 because they are not having ent in approved securities. In GCB the ratio was highest in the year 2006 by 1.41% and at last in the year 2009 which was lowest during the last five years. In the year 2009 or change in investment in government securities but the ratio was decreased crement in total asset by 11 crore. 0.00% 0.20%

any investm it was 0.62% there was min because of in

0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 2004 05 2005 06 2006 07 2007 08 2008 - 09 Chart - 18 GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 78 In BOI the ratio was continuously decreased from 0.87% in the year 2005 to 0.2 9% in the year 2009. The ratio is continuously decreased because of decrement in Approved securities. In the last year 2009 the ratio was decreased because of decrement in approved securities by approx 13%. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 79 Liquidity Asset to Demand Deposit: Liquidity Asset to Demand Deposit = Liquidity Asset Demand Deposit TABLE - 19 Banks 2004 05 2005 06 2006 07 2007 08 2008 - 09 AXIS Bank 37.38% 22.71% 29.53% 31.24% 29.70% GCB 36.33% 41.68% 49.90% 19.72% 61.16% Bank of India 27.63% 34.80% 45.07% 38.54% 42.80% Interpretation: The ratio shows the power of liquidity asset against total demand deposits. It means what part of the demand deposits can be easily converted into monetary form in need. In AXIS Bank, this ratio was continuously decreased from 37.38% in 2005 to 29.53% in 2007, than increased to 31.24% in 2008 and again decreased in 2009 to 29.70%. The ratio was decreased in the year 2009 because of increment in the assets was 18% which was less than the increment in the demand deposits which was 27%. In GCB the ratio was fluctuate because of the change in the cash ba lance during the each year ending. In the year 2009 because of increment in cash balance by approx 14 crore the liquidity assets were increased and vice versa the ratio was also increased.

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 2004 05 2005 06 2006 07 2007 08 2008 - 09 Chart - 19 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 80 In BOI the ratio was 27.63% in 2005 and at last in 2009 it was 42 .80%. The ratio was increased in the last year because of increment in assets by 20%. Th ere was not any large difference in demand deposits than the previous year. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 81 Liquidity Asset to Total Deposit: Liquidity Asset to Total Deposit = Liquidity Asset Total Deposit TABLE - 20 Banks 2004 05 2005 06 2006 07 2007 08 2008 09 AXIS Bank 14.20% 9.08% 11.77% 14.27% 12.79% GCB 8.67% 12.45% 15.67% 6.88% 20.01% Bank of India 9.55% 12.19% 14.52% 11.81% 11.47% Interpretation: The ratio shows how much part of the deposits invested into the liquidity asset, which can be easily convert in to monetary value in the time of need. In AXIS Bank, the ratio was 14.20% in 2005 and after fluctuation it was 12.79% in 2009. In the year 2009, the deposits were increased by 33.95% and the assets were increased by 18 %. So the ratio for the year 2009 was decreased. In GCB, the ratio was 8.67% in 2005 and after fluctuation it was 20.01% in 2009. The ratio was increased because of increment in the liquidity assets and the ma in increment was in cash balance and it was increased from 7.28 crore to 22.16 crore. In BOI, the ratio was 9.55% in 2005 and after fluctuation it was 11.47% in 2009. The ratio was decreased a little because of 22% increment in deposits and approx 20% inc rement in assets in the year 2009. 0.00%

5.00% 10.00% 15.00% 20.00% 25.00% 2004 05 2005 06 2006 07 2007 08 2008 - 09 Chart - 20 AXIS Bank GCB Bank Bank of India Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 82 6.2) ANALYSIS COMPONENT RATINGS TO THE BANKS Now, after analyzing the ratio to all the parameters according to the importance of en weightage according to the importance of icular point. The total weightage allocated to the all eightage given to different parameters is as follows: TABLE - 21 Component Weightage Parameter Weightage Capital Adequacy 28% Asset Quality 14% Management 15% Earnings 18% Liquidity 25% Total 100%

next, task to do is to give weightage the ratios. Each component will be giv itself and ratios covered in that part parameters would be out of 100. The w

Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 83 Ratio Wise Weightage: After giving the importance to the each parameter, now its turn to g ive the weightege according to the importance of the ratio we will allocate the weightage to the e ach particular ratio. The weightage given to the each ratio is as follows: TABLE - 22 RATIO WEIGHTAGE Capital Adequacy Out of 28% Capital Risk Adequacy Ratio 7% Debt Equity Ratio 7% Total Advance to Total Asset Ratio 7% Government Securities to Total Asset 7% Asset Quality Out of 14% Gross NPA to Total Loan 7% Net NPA to Total Loan 7% Management Out of 15% Total Advance to Total Deposits 5% Business per Employee 5% Profit per Employee 5% Earnings Out of 18%

Dividend Payout Ratio 3% Return on Asset 3% Operating Profit to Average Working Fund 3% Net Profit to Average Asset 3% Interest Income to Total Income 3% Other Income to Total Income 3% Liquidity Out of 25% Liquid Asset to Total Asset 5% Government Security to Total Security 5% Approved Security to Total Security 5% Liquidity Asset to Demand Deposit 5% Liquidity Asset to Total Deposit 5% Total 100% Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 84 After allocating the weightage, we have made frequency classes accordin g to the results found from the ratios for each ratio of each parameter. He frequency classes for each ratio are as follows: Capital Adequacy: TABLE - 23 Ratios Marks 1 2 3 4 5 6 7 CRAR Below 15.50 15.5020.00 20.0024.50 24.5029.00 29.0033.50 33.50 38.00 Above 38 Debt-Equity Ratio Above 125 115125 105115 95-105 85-95 75-85 Below 75 Total Advance to

Total Asset Below 35 35-40 40-45 45-50 50-55 55-60 Above 60 G-sec to Total Investment Below 58 58-65 65-72 72-79 79-86 86-93 Above 93 Asset Quality: TABLE - 24 Ratios Marks 1 2 3 4 5 6 7 Gross NPA to Total Loan Above 9 7.50 9.00 6 7.50 4.506.00 3.004.50 1.503.00 Below 1.5 Net NPA to Total Loan Above 3 2.50 3.00 2 2.50 1.50 2.00 1.00 1.50 0.50 1.00 Below 0.5 Management Quality: TABLE - 25 Ratios Marks 1 2 3 4 5 Total Advance to Total Deposit Below 46 46-55 55-64 64-73 Above 73 Business per Employee

Below 2.50 2.50 5.00 5.00 7.50 7.50 10 Above 10 profit per Employee Below 2.00 2.00 4.50 4.50 7.00 7.00 9.50 Above 9.50 Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 85 Earnings Quality: TABLE - 26 Ratios Marks 0.5 1.0 1.5 2.0 2.5 3.0 Dividend payout Ratio Below 10 10-17 17-24 24-31 31-38 Above 38 Return on Asset Below 0.5 0.50 0.75 0.75 1.00 1.00 1.25 1.25 1.50 Above 1.50 Operating Profit to Average Working Fund Below 1.75 1.752.00 2.00 2.25

2.25 2.50 2.50 2.75 Above 2.75 Net Profit to Average Asset Below 0.5 0.50 0.75 0.75 1.00 1.00 1.25 1.25 1.50 Above 1.50 Interest Income to Total Income Below 56 56 67 67 76 76 85 85 94 Above 94 Other Income to Total Income Below 4 4-13.50 13.5023 23-32.5 32.5-42 Above 42 Liquidity: TABLE - 27 Ratios Marks 1 2 3 4 5 Liquidity Asset to Total Asset Below 7 7 9 9 11 11 -13 Above 13 G-Sec to Total Asset Below 24 24 31 31 38 38 45 Above 45 Approved Securities to Total Asset Below 0.50 0.50 0.75 0.75 1.00 1.00

1.25 Above 1.25 Liquid Asset to Demand Deposit Below 27 27 35 35 43 43 51 Above 51 Liquid Asset to Total Deposit Below 9 9 12 12 -15 15 18 Above 18

Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 86 After allocating classes for the each ratio and for the five years, now we will give marks to each bank on the basis of average of their average of performance during the las t five years i.e. 20005 to 2009 to all the banks. Capital Adequacy: The table given below shows the marks given to the Capital Adequacy ratios out of 7 marks. TABLE - 28 Ratios Banks AXIS bank GCB Bank of India CRAR 1 6 1 Debt-Equity Ratio 4 0 4 Total Advance to Total Asset Ratio 6 4 7 G-Sec to Total Investment 1 6 4 TOTAL 12 16 16 Asset Quality: The table given below shows the marks given to the Asset Quality ratios out of 7 marks. TABLE - 29 Ratios Banks AXIS bank GCB Bank of India Gross NPA to Total Loan Ratio 7 2 5 Net NPA to Total Loan Ratio 6 3 5 TOTAL 13 5 10 Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES

Page 87 Management Quality: The table given below shows the marks given to the Management Quality ratios out of 5 marks. TABLE - 30 Ratios Banks AXIS bank GCB Bank of India Total Advance to Total Deposit 3 2 4 Business per Employee 5 2 3 profit per Employee 4 2 2 TOTAL 12 6 9 Earning Quality: The table given below shows the marks given to the Earning Quality ratios out of 3 marks. TABLE - 31 Ratios Banks AXIS bank GCB Bank of India Dividend Payout Ratio 1.5 2.5 1 Return on Asset 1.5 2.5 1.5 Operating profit to Average working Fund 2 - 1.5 Net profit to Average asset 2 2.5 1.5 Interest Income to Total Income 1 3 2 Other Income to Total Income 2.5 1 1.5 TOTAL 10.5 11.5 9 Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 88 Liquidity: The table given below shows the marks given to the Liquidity ratios out of 5 mar ks. TABLE - 32 Ratios Banks AXIS bank GCB Bank of India Liquidity Asset to Total Asset 3 3 3 G-Sec to Total Asset 1 4 1 Approved Securities to Total Asset 0 3 2 Liquid Asset to Demand Deposit 2 3 3 Liquid Asset to Total Deposit 3 3 2 TOTAL 9 16 11 Overall Ranking to the Banks: TABLE - 33 Parameters Banks AXIS bank GCB Bank of India Capital Adequacy 12 16 16 Asset Quality 13 5 10 Management Quality 12 6 9 Earning Quality 10.5 11.5 9

Liquidity 9 16 11 TOTAL 56.5 54.5 55 Rank 1 3 2 After the so we st rank nd rank rd going through the whole the process, we found AXIS Bank scored highest score gave 1 to them, and accordingly the 2 was given to Bank of India and 3

rank was given to Gandhidham Co-operative Bank. We found that AXIS Ba nk has performed better than other two banks during the last five years. Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 89

Chapter 7 CONCLUSION, SUGGESTIONS AND RECOMMENDATION Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 90 7.1) CONCLUSION The report makes an attempt to examine and compare the performance of the three different sector banks of India i.e. from private sector bank, AXIS Bank, from Co-operative bank, Gandhidham Co-operative Bank and from the public sector bank, Bank of India. The analysis is based on the CAMEL Model. The study has brought many int eresting 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 the GCB has maintained highest across the d uration of last five years i.e. more than 30%. It is very good sign for the bank to survive and to expand in future.

Gross NPA ratio has registered declining trend for all the three banks during the last five years. But Bank of India and Axis Bank have been successful during the last five years in managing the level of NPA. Whereas the GCB has yet 8.35% of Gros s NPA after declining. But at the end of the year 2008-09 GCB has 0% Net NPA whereas BOI an d AXIS have 0.40% to o.50% Net NPA. Thus, it indicates for improvement in the asset quality position of all the three banks. In Management Quality, we have found that Business per Employee Ratio and Prof it per Employee Ratio is increased during the last five years in Axis Bank and Bank of India but there is not any major change in the GCB. The improvement shows the growth of the bank as well as efficiency of the employee, which is very good in both the b anks and they will help to the bank to grow in future. In Earnings Quality, Because their large part of change in Interest Rate will effect on it estment in G-sec. And the same Rating The Performance Page 91 The Liquidity ratios indicate better liquidity of all the banks. However, AXIS Bank has performed throughout well, GCB has an edge over in liquidity if compa red with each other according to these ratios. From the above analysis we would like to conclude that AXIS bank has high effici ency in terms of Assets Quality, Management Quality and GCB is good in terms of Capital Adequacy and Liquidity whereas Bank of India is good in terms of Capital Adequac y. After evaluating all the ratios, calculations and ratings we have give n 1 st Rank to AXIS bank, 2 nd Rank to BOI and 3 rd Rank to GCB. Rating The Performance of the Bank through CAMELS Model the major part of income of GCB is from Interest income. investment is in Government Securities. A little more. In comparison of that the Axis Bank has average inv way BOI has a little more than Axis Bank. of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES

TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 92 7.2) In are good Suggestions and Recommendation AXIS bank, debt equity ratio is continuously rising over the years which not so they have to increase equity or reduce debts in their capital structure.

GCB has comparatively less total advance to total asset ratio. So, bank has to give more advances in order to earn more interest. But they should have t o also keep in mind the credit worthiness of the customers. GCB has highest Government Security to total investment ratio which leads to reduce their income and ultimately reduce their profitability so they have to in vest in other than government investment option rather than only in government securitie s. GCB has highest Gross NPA ratio which is not good for the bank. They should gi ve loans to the customers, whose credit worthiness is good. Though their Net NPA ra tio is nil, they have to make more provisions in order to meet their Gross NPA which is affecting their profitability badly. In AXIS Bank Interest Income to Total Income Ratio is less. Because they are giving fewer advances. So, in order to earn more interest income they should inv est more in government approved securities and give more advances to their customers . Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 93 BIBLIOGRAPHY Websites: www.rbi.org.in www.allbankingsolutions.com www.axisbank.com www.bankofIndia.com www.economictimes.indiatimes.com http://www.springerlink.com/content/j0311813x7672564/ http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1150968 Books and Journals: The ICFAI Journal of Bank Management Vol. V, No.3, August 2006 Indian Finance System by Bharti Pathak Annual Reports of AXIS Bank Annual Reports of Gandhidham Co-Operative Bank Annual Report of Bank of India

Rating The Performance of the Bank through CAMELS Model TOLANI INSTITUTE OF MANAGEMENT STUDIES Page 94

ANNEXURE