CHAPTER 1

INTRODUCTION






I
INTRODUCTION
This chapter briefly introduces to CAMELS its history and its evaluation in India.
This chapter also include Raison dtre of the study, objective, Problem statement,
Research Hypothesis, Research Methodology, sources of data, Plan of the study etc.


A sound financial system is indispensable for a healthy and vibrant economy. The
banking sector constitutes a predominant component of the financial services
industry. The performance of any economy to a large extent is dependent on the
performance of the banking sector. The banking sectors performance is seen as the
Replica of economic activities of the nation as a healthy banking system acts as the
bedrock of social, economic and industrial growth of a nation. Banking institutions in
our country have been assigned a significant role in financing the process of planned
economic growth.

During the past six decades since independence, the banking sector has witnessed
significant changes and has surely come a long way from the days of nationalisation
during early 1970s to the advent of liberalization, privatization and globalization, in
the post-1991 era. The flurry of reforms witnessed over the last one and half decade
has brought about significant changes in the banking arena in the country.
Leveraging on their new found tech-savvy and increased thrust on product/service
innovation, the banks in the country witnessed a phenomenal growth in the last few
years as the economic growth moved up into top gear to be amongst top in the world.

The Asian crisis of 1997 and the recent events like the US subprime crisis have once
again underlined the significance of a strong and robust financial sector for smooth
and efficient allocation of resources. The Indian banking sector has been the
backbone of the Indian economy over the past few decades, helping it survive various
national and worldwide economic shocks and meltdowns. It is one of the healthiest
performers in the world banking industry seeing tremendous competitiveness,
growth, efficiency, profitability and soundness, especially in the recent years.

Indian banks, were initially in a denial mode about the impact of crisis (on them),
but soon admitted to vulnerability to global shocks, have shown remarkable
resilience, thanks to the Reserve Bank of Indias timely and prudent measures which
saved the domestic banks from the blushes of the worst financial crisis. Life seems to
be returning to normal in the global banking sector after it was hard hit by the
financial catastrophe, which unravelled in September, 2008, as better than expected
results from banks across the globe lend credence to the claims that stimulus efforts
are finally yielding results. Against this background, it is important to measure the
performance of the banking sector through a performance measurement system that
provides an opportunity to assess the performance of Indian banks specially the
private sector banks.

The present supervisory system in banking sector is a substantial improvement over
the earlier system in terms of frequency, coverage and focus as also the tool
employed. Majority of the Basel Core Principles for effective banking supervision
have already been adhered to and rest is at the stage of implementation. Two
supervisory rating models based on CAMELS (Capital Adequacy, Assets Quality,
Management, Earning, Liquidity, Systems and Controls) and CACS (Capital
Adequacy, Assets Quality, Compliance, Systems and Controls) factors for rating of
Indian commercial Banks and Foreign Banks operating in India respectively, have
been worked out on the lines recommended by Padmanabhan Working Group
(1995). These ratings would enable the RBI to identify the banks whose condition
warrants special supervisory attention (Bodla and Verma, 2006).

Two decades have elapsed since the initiation of banking sector reforms in India.
Over this period, the banking sector has experienced a paradigm shift. Hence, it is
high time to make performance appraisal of this sector. Accordingly, a framework for
the evaluation of the current strength of the system, and of operations and the
performance of the banks has been provided by Reserve Banks measuring rod of
CAMELS which stands for capital adequacy, assets quality, management efficiency,
earning quality, liquidity and internal control systems.

The main endeavour of CAMEL system is to detect problems before they manifest
themselves. The RBI has instituted this mechanism for critical analysis of the
balance-sheet of banks by themselves and presentation of such analysis to provide
for internal assessment of the health of banks. The analysis, which is made available
to the RBI, forms a supplement to the system of off-site monitoring of banks. The
prime objective of the CAMEL model of rating banking institutions is to catch up the
comparative performance of various banks (Bodla and Verma, 2006).

1.1 The development of CAMELS Rating System
The CAMELS ratings is a supervisory rating system originally developed in the U.S. to
classify a bank's overall condition. It's applied to every bank and credit union in the U.S.
(approximately 8,000 institutions) and is also implemented outside the U.S. by various
banking supervisory regulators.
The ratings are assigned based on a ratio analysis of the financial statements,
combined with on-site examinations made by a designated supervisory regulator. In
the U.S. these supervisory regulators include the Federal Reserve, the Office of the
Comptroller of the Currency, the National Credit Union Administration, and the
Federal Deposit Insurance Corporation.
Ratings are not released to the public but only to the top management to prevent a
possible bank run on an institution which receives a CAMELS rating downgrade.
Institutions with deteriorating situations and declining CAMELS ratings are subject
to ever increasing supervisory scrutiny. Failed institutions are eventually resolved via
a formal resolution process designed to protect retail depositors.
The CAMEL framework was originally intended to determine when to schedule on-
site examination of a bank (Thomson, 1991; Whalen and Thomson, 1988). The five
CAMEL factors, viz. Capital adequacy, Asset quality, Management soundness,
Earnings and profitability, and Liquidity, indicate the increased likelihood of bank
failure when any of these five factors prove inadequate. The choice of the five CAMEL
factors is based on the idea that each represents a major element in a banks financial
statements. Several studies provide explanations for choice of CAMEL measures:
Lane et al. (1986), Looney et al. (1989), Elliott et al (1991), Eccher et al. (1996), and
Thomson (1991). For example, Waldron et al (2006) suggested that one of these
threats represented in CAMEL exists in the loss of assets; similarly, short-term liquid
assets aid in covering loan payment defaults and offset the threat of losses or large
withdrawals that might occur. The CAMELS framework extends the CAMEL
framework, considering six major aspects of banking: Capital adequacy, Asset
quality, Management soundness, Earnings and profitability, Liquidity, and
Sensitivity to market risk. Sensitivity to market risk, the "S" in CAMELS is a
complex and evolving measurement area. It was added in 1995 by Federal Reserve
and the OCC primarily to address interest rate risk, the sensitivity of all loans and
deposits to relatively abrupt and unexpected shifts in interest rates.

1.2 CAMELS in India
In 1994, the RBI established the Board of Financial Supervision (BFS), which
operates as a unit of the RBI. The entire supervisory mechanism was realigned to suit
the changing needs of a strong and stable financial system. The supervisory
jurisdiction of the BFS was slowly extended to the entire financial system barring the
capital market institutions and the insurance sector. Its mandate is to strengthen
supervision of the financial system by integrating oversight of the activities of
financial services firms. The BFS has also established a sub-committee to routinely
examine auditing practices, quality, and coverage.
In addition to the normal on-site inspections, Reserve Bank of India also conducts
off-site surveillance which particularly focuses on the risk profile of the supervised
entity. The Off-site Monitoring and Surveillance System (OSMOS) were introduced
in 1995 as an additional tool for supervision of commercial banks. It was introduced
with the aim to supplement the on-site inspections. Under off-site system, 12 returns
(called DSB returns) are called from the financial institutions, which focus on
supervisory concerns such as capital adequacy, asset quality, large credits and
concentrations, connected lending, earnings and risk exposures (viz. currency,
liquidity and interest rate risks).
In 1995, RBI had set up a working group under the chairmanship of Shri S.
Padmanabhan to review the banking supervision system. Based on the Committees
certain recommendations and suggestions a rating system for domestic and foreign
banks based on the international CAMELS model combining financial management
and systems and control elements was introduced for the inspection cycle
commencing from July 1998. CAMEL is, basically, a ratio-based model for evaluating
the performance of banks. It is a model for ranking/rating of the banks. It
recommended that the banks should be rated on a six point scale (A to F) based on
the elides of international CAMEL rating model. CAMELS evaluate banks on the six
parameters. Various ratios forming the model are explained as follows (Joshi and
Joshi, 2002):

A) Capital Adequacy
Capital adequacy has emerged as one of the major indicators of the financial health
of a banking entity. It is important for a bank to maintain depositors confidence and
preventing the bank from going bankrupt. Capital is seen as a cushion to protect
depositors and promote the stability and efficiency of financial system around the
world. Capital Adequacy reflects the overall financial condition of the banks and also
the ability of management to meet the need for additional capital. It also indicates
whether the bank has enough capital to absorb unexpected losses. Capital Adequacy
Ratio acts as an indicator of bank leverage. The following ratios measure Capital
Adequacy:
1. Capital adequacy ratio (CAR)
Capital adequacy ratios ("CAR") are a measure of the amount of a bank's core capital
expressed as a percentage of its risk-weighted asset.
Capital adequacy ratio is defined as

CAR = (Tier 1 Capital + Tier 2 Capital) / Risk weighted Assets

TIER 1 CAPITAL - (paid up capital + statutory reserves + disclosed free reserves) -
(equity investments in subsidiary + intangible assets + current and b/f losses)

TIER 2 CAPITAL i. Undisclosed Reserves, ii. General Loss reserves, iii. Hybrid debt
capital instruments and subordinated debts where risk can either be weighted assets
(a) or the respective national regulator's minimum total capital requirement. If using
risk weighted assets,

CAR = [ ( T1 + T2 ) / a ] > = 10%

10% Percent threshold varies from bank to bank (10% in this case, a common
requirement for regulators conforming to the Basel accords) is set by the national
banking regulator of different countries.

Two types of capital are measured: tier one capital (T1 above), which can absorb
losses without a bank being required to cease trading, and tier two capital (T2
above), which can absorb losses in the event of a winding-up and so provides a lesser
degree of protection to depositors.


B) Assets Quality
The quality of assets is an important parameter to gauge the degree of financial
strength. The prime motto behind measuring the assets quality is to ascertain the
component of Non-Performing Assets (NPAs) as a percentage of the total assets. This
indicates what types of advances the bank has made to generate interest income.
Thus, assets quality indicates the type of the debtors the bank is having.
The asset quality assessment is based on evaluating credit risks associated with a
bank's portfolios. A bank's ability to detect, measure, monitor and regulate credit
risks is also assessed, while taking into account any provisions against bad and
doubtful claims.

(TOTAL NON-PERFORMING LOANS>90 DAYS - PROVISIONS) / TOTAL LOANS

The nominator contains the net non-performing loans. The total of non-performing
loans over 90 days has been defined by Basil II as a critical point for loan repayment.
The provisions include reserve capital withheld by the bank in order to compensate
for losses originating from loans the delay of which has been provisioned. The lower
the index the more accurate the bank provisions of these delays and consequently,
the higher the quality and reliability of its portfolios.


C) Management Quality Ratio
Management quality ratio is another vital component of the CAMEL Model that
ensures the survival and growth of a bank. The ratios in this segment involve
subjective analysis and efficiency of management. The management of the bank takes
crucial decisions depending on the risk perception. It sets vision and goals for the
organization and sees that it achieves them. This parameter is used to evaluate
management efficiency as to assign premium to better quality banks and discount
poorly managed ones. The ratios used to evaluate management efficiency are
described as under:

1. Total advances to Total Deposits
2. Business per Employee
3. Profit per Employee
4. Return on Net Worth

D) Earning Quality
Earnings and profitability form the primary source for capital base increases and are
examined in relation to interest rate policies and provisions adequacy. These ratios,
also, help support a bank's current and future activities. Strong profits combined
with its earnings profile reflect a bank's ability to support current and future tasks.
More specifically, this ratio reflects the bank's ability to absorb losses, expand its
financing, as well as, its ability to pay dividends to its shareholders, and helps
develop an adequate amount of own capital. The assessment of earnings is not only
performed in terms of amount and profit tendencies, but also in respect of quality
and duration.

(a) ROA= NET PROFITS/ TOTAL ASSETS

This ratio correlates net profits with total assets and indicates whether asset
management is efficient enough to produce profits. The higher the ratio the more
efficient the bank; a satisfactory performance would produce a value between 1% and
2.5%.

(b) ROE= NET PROFITS/ OWN CAPITAL


E) Liquidity
Liquidity is very important for any organization dealing with money. For a bank,
liquidity is a crucial aspect which represents its ability to meet its financial
obligations. It is of utmost importance for a bank to maintain correct level of
liquidity, which will otherwise lead to declined earnings. Banks have to take proper
care in hedging liquidity risk, while at the same time ensuring that a good percentage
of funds are invested in higher return generating investments, so that banks can
generate profit while at the same time provide liquidity to the depositors. Among a
banks assets, cash investments are the most liquid. A high liquidity ratio indicates
that the bank is more affluent. During liquidity assessment, the current liquidity
status of the bank is taken into account in relation to the liabilities it has undertaken.
It also tests the bank's ability to deal with changes in its financing resources, as well
as, changes in market conditions which alter the fast liquidation of its assets, with the
least possible losses.

(a) LOANS TO TOTAL DEPOSITS (L1) = TOTAL LOANS / TOTAL DEPOSITS.

This ratio presents the extent in which deposits are maintained for issuing loans and
therefore the bank's dependence in interbank markets. The lower this ratio is the
better the bank's liquidity status, while a value of less than one offers security for
loans since deposits alone are sufficient to cover such loans.

(b) CIRCULATING ASSETS TO TOTAL ASSETS (L2) = CIRCULATING ASSETS/
TOTAL ASSETS

This ratio gives us a bank's liquidity status of circulating assets, such as cash in hand,
claims against other banking institutions and its trading, investment and derivatives
portfolios. The ratio offers banks the ability to know the extent if their liabilities that
may be covered by its not directly available assets. The higher is the bank's ratio, the
better its liquidity status.


F) Sensitivity - sensitivity to market risk, especially interest rate risk
A bank's assessment on sensitivity towards market risks examines the extent to
which potential changes in interest rates, foreign currency exchange rates, product
purchase and selling prices, affect the bank's profits and the value of its assets.

TOTAL SECURITIES TO TOTAL ASSETS = TOTAL SECURITIES / TOTAL ASSETS

Market forces, especially in the recent years, consist of a major reason for changes in
the viability of banks. Price movements in favour of a bank's portfolio may boost the
Bank's results whereas unfavourable movements may create severe problems to the
Bank. This ratio correlates a bank's total securities portfolio with its assets and gives
us the percentage change of its portfolio in changes of interest rates or other issues
related to the issuers of the securities. The lower the value of this ratio, the better for
the bank since this indicates that its reactions towards market risks are appropriate.
On the other hand, a higher value of this ratio would indicate that the bank's
portfolio is susceptible to market risks.

1.3 Raison dtre of the study
Banks serve as backbone to the financial sector, which facilitate the proper utilization
of financial resources of a country. The banking sector is increasingly growing and it
has witnessed a huge flow of investment. In the early 1990s the then Narasimha Rao
government embarked on a policy of liberalization and gave licences to a small
number of private banks, which came to be known as New Generation tech-savvy
banks, which included banks such as UTI Bank (now re-named as Axis Bank) (the
first of such new generation banks to be set up), ICICI Bank and HDFC Bank. This
move, along with the rapid growth in the economy of India, kick started the banking
sector in India, which has seen rapid growth with strong contribution from all the
three sectors of banks, namely, government banks, private banks and foreign banks.
The next stage for the Indian banking has been setup with the proposed relaxation in
the norms for Foreign Direct Investment, where all Foreign Investors in banks may
be given voting rights which could exceed the present cap of 10%, at present it has
gone up to 49% with some restrictions. The new policy shook the Banking sector in
India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at
4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern
outlook and tech-savvy methods of working for traditional banks. All this led to the
retail boom in India. People not just demanded more from their banks but also
received more.

In addition to simply being involved in the financial intermediation activities, banks
are operating in a rapidly innovating industry that urges them to create more
specialized financial services to better satisfy the changing needs of their customers.
Sundararajan et al. (2002) argues that the financial system, the bank in particular, is
exposed to a variety of risks that are growing more complex nowadays. Furthermore,
the economic downturn of 2008 which resulted in bank failures, are triggered in the
U.S. and then wildly spread worldwide. It therefore increasingly urges the need of
more frequent banking examination.

In order to cope with the complexity and a mix of risk exposure to banking system
properly, responsibly, beneficially and sustainably, it is of great importance to
evaluate the overall performance of banks by implementing a regulatory banking
supervision framework. One of such measures of supervisory information is the
CAMEL rating system which was put into effect firstly in the U.S. in 1979, and now is
in use by three U.S. supervisory agencies-the Federal Reserve System, Office of the
Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation
(FDIC). It has been proved to be a useful and efficient tool in response to the
financial crisis in 2008 by U.S. government.

CAMELS rating are used as a private rating framework in bank analysis for its own
investment purposes rather than that used by regulatory bodies in supervising the
banks. Credit Rating of Indian banks are questioned several times because of
differences in credit rating assigned to them by different credit rating agencies.
Therefore, it is necessary to test the CAMELS model as a tool to assign credit rating
to different private sector banks and assign credit rating to them accordingly.

Banking in India is mature in terms of supply, product range and reach-even in rural
India through rural banking and remote banking. In terms of quality of assets and
capital adequacy, Indian banks are considered to have clean, strong and transparent
balance sheets.

The Raison dtre of the study is to analyse the overall financial performance of
major private sector banks in India through application of CAMEL Model. Besides it
also attempts to compare the performance of these Banks with the help of Composite
Ranking Method. The study aims to give detailed analysis of CAMELS model in
Indian banking institutions (Private Sector) and the CAMELS framework as the main
measure to evaluate the overall safety and soundness of private sector banks.

CAMELS framework in modern banking has become very important as a tool to
measure performance of banking institutions. Therefore, the study aims in
performance evaluation of Indian Private Sector banks using CAMELS approach.

The study is also aims at the implementation challenges of BASEL III norms in
Indian banking industry i.e. private sector banks in India and future of CAMELS
model as a tool to evaluate the overall safety and soundness of private sector banks
under BSEL III norms.

1.4 Statement of the problem
The Asian crisis of 1997 and the recent events like the US subprime crisis have posed
a serious challenge to the financial system at large. The commercial banks in India,
both public and private sector, were by and large successful in managing the crisis.
But, it cannot be said with confidence that the commercial banks in India, specially
the private sector banks are isolated from such kinds of shocks in near future.
Further, in the recent years the financial system especially the banks in India have
undergone numerous changes in the form of reforms, regulations & norms. CAMELs
framework for the performance evaluation of banks is an addition to this. Thus, it
becomes imperative to take a closer look at the financial nuances of the private
commercial banking sector in India. Hence, this study aims to look at the financial
soundness of the commercial banks operating in India using a very simplified
approach using internationally accepted CAMELS rating parameters and then t- test
is applied on the results so achieved through ratio analysis to test the level of
significance of those results. The study is conducted to analyze the pros & cons of this
model too.

1.5 Objective of the Study
The research synopsis, the review of literature, and the critical comments from
reviewers of national and international journal are kept in mind while framing the
research objective of the study. The research objective mentioned in the masters
synopsis aimed
To give the detailed analysis of the CAMEL MODEL in Indian Banking
Institutions primarily of private sector banks.
To study CAMELS framework contribution in modern banking as a tool to
evaluate the overall safety and soundness of private sector banks.
Performance evaluation of Indian Private sector banks.
To study and compare credit rating of Indian Private Sector banks using
CAMELS approach.
It also attempts to compare the performance of these Banks with the help of
Composite Ranking Method.
To study implementation challenges of Basel III norms in Indian Private
Sector banks and futures of CAMELS approach.
On the basis of result of the result of the study to suggest various measures to
improve the performance of the Banks in future.


1.6 Research Hypothesis
For the purpose of modelling the above objectives and based on the problem
statement of the study, the following hypotheses have been constructed. These
hypotheses are based on existing research work recently undertaken by WIRNKAR
A.D. AND TANKO M.

HO1: There is no significant difference between banks efficiency and capital
adequacy.

HO2: There is no significant difference between banks efficiency and asset quality.

HO3: There is no significant difference between banks efficiency and management
quality.

HO4: There is no significant difference between banks efficiency and earnings
ability.

HO5: There is no significant difference between banks efficiency and liquidity.
HO6: There is no significant difference between banks efficiency and Sensitivity.

1.7 Research Methodology
Financial Performance Analysis is the process of scientifically making a proper,
critical and comparative evaluation of profitability and the financial health of Banks
through the applications of the techniques of financial statement analysis. Financial
Analysis covers a vast area and is of great practical importance. The Banks use
various ratios for measuring the financial performance which tells us the true
financial position of the bank. To look at the financial soundness and infer about
convergence of the private commercial banks operating in India a very simplified
approach i.e. internationally accepted CAMEL rating parameters have been used.
CAMELS are an acronym for six measures (capital adequacy, assets quality,
management soundness, earnings, liquidity, and sensitivity to market risk). In this
analysis the six indicators which reflect the soundness of the institution framework
are considered. Various ratios calculated under the Model help in identifying the
strengths /weaknesses of banks and suggesting improvement in its future working.
Four top private commercial banks of India were selected purposively for the study.
The banks selected for the purpose for the study are traded in National Stock
Exchange (http://www.nseindia.com/content/indices/ind_cnxbank.htm) and are
part of CNX bank Index. CNX Bank Index is an index comprised of the most liquid
and large capitalized Indian Banking stocks. It provides investors and market
intermediaries with a benchmark that captures the capital market performance of the
Indian banks.
The banks selected for the purpose of the study are Axis Bank, HDFC Bank Ltd
(HDFC), ICICI Bank Ltd (ICICI) and Yes Bank.

Following is a description of the graduations of rating:-
Rating 1: Indicates strong performance: BEST rating.
Rating 2: Reflects satisfactory performance.
Rating 3: Represents performance that is flawed to some degree.
Rating 4: Refers to marginal performance and is significantly below average and
Rating 5: Is considered unsatisfactory: WORST rating.

CAMELS Numerical Rating with Rating Description is mentioned below:-
1. STRONG: It is the highest rating and is indicative of performance that is
significantly higher than average.
2. SATISFACTORY: It reflects performance that is average or above; it includes
performance that adequately provides for the safe and sound operation of the banks.
3. FAIR: Represent performance that is flawed to some degree. It is neither
satisfactory nor unsatisfactory but is characterised by performance of below average
quality.
4. MARGINAL: Performance is significantly at below average; if not changed, such
performance might evolve into weaknesses or conditions that could threaten the
viability of the bank.
5. UNSATISFACTORY: Is the lowest rating and indicative of performance that is
critically deficient and in need of immediate remedial attention. Such performance
by itself, or in combination with other weakness, threatens the viability of the
institution.

1.8 Sources of Data
The ratios depicting the CAMELS parameters are calculated based on the publicly
available information. The data are collected from the secondary sources such as
publicly available information published at Reserve Bank of India, Indian Bankers
Association and Moneycontrol.com magazines, journals, etc. These sources consist
of already variable data in the form of statements, and reports, which may include
sensory reports, financial statements of the company, reports of governments
departments, etc.

The secondary data also include collection on the basis of organizational file, official
records, newspapers, magazines, management books, preserved information in the
companys database and the Website of the banks. Only Secondary sources were used
for data collection.

1.9 Plan of the Study
The study is divided into 5 chapters. Contents in each chapter are designed in such a
way that contents in the chapters reflect the title head of their respective chapters.
Each chapter tries to find out and answer the questions raised in this particular study
and tries to fulfil the objectives of the study. The title head of each chapter with their
chapter numbers are as follows:-
CHAPTER 1: INTRODUCTION
This chapter introduces briefly about the title of this study i.e. An empirical
study of CAMELS approach on Indian private sector banks. This chapter will
also include in brief about the Raison detre of the study, objective of the
study, brief about the methodology to be used in the study, sources of data,
and limitations of the study etc.
CHAPTER 2: REVIEW OF EXISTING LITERATURE
In the process of continuous evaluation of the banks financial performance
both in public sector and private sector, the academicians, scholars and
administrators have made several studies on the CAMELS model but in
different perspectives and in different periods. This has been made me to take
up the study on those areas where the study is incomplete. Hence, the
knowledge on the current topic of the financial performance of the banks is
reviewed here under to appraise the need for the present study. This chapter
include the reviews of such research reports related to this area of study and
which helped in framing the conceptual framework of this literature.
CHAPTER 3: THEORETICAL UNDERPINNINGS
The objective of this chapter is to provide a brief of the history of Banking in
India in phases. The second half of the chapter gives the conceptual
framework of the CAMELS and BASEL in Indian Banking Industry.
CHAPTER 4: RESEARCH METHODOLOGY
In this chapter, an attempt has been made to present the methodology
adopted for the study, such as, data and samples, and data analysis for
preliminary and main analysis with detailed description of financial ratio
analysis and Statistical test used for the analysis.
CHAPTER 4: ANALYSIS AND INTERPRETATION
This chapter will include analysis and interpretation of results so obtained
using tests and presenting those results properly with analysis.
CHAPTER 5: CONCLUSION AND SUGGESTIONS
The result achieved in the study with their positive and negative impact is
stated in this chapter. The chapter will clearly mention the significance and
contribution of the study and suggest ways and measure to overcome negative
result in the study and conclude the study.

1.10 Limitations of the Study
No study can be done without any limitations. There are limitations in every study
conducted throughout the universe. This study is of no exception. Some of the
limitations of this study are outlined below:-

1) The study was limited to four banks.
2) Time and resource constrains.
3) The study is based on the data of past three or four years only.
4) The method discussed pertains only to banks though it can be used for
performance evaluation of other financial institutions.
5) The study is completely done on the basis of ratios calculated from the secondary
data available like prospectus of the company, annual report, news papers,
magazines etc.
6) It has not been possible to get a personal interview with the top management
employees of all banks under study.

1.11 Summary and Conclusion
This chapter has attempted to provide a brief outlook on history of CAMELS and
CAMELS evaluation in India. The chapter briefs about Raison dtre of undertaking
the study, the objectives of the study and briefly outlines the statement of problem.
The research synopsis, the review of literature, and the critical comments from
reviewers of national and international journal are kept in mind while framing the
research objective of the study.

The research hypothesis is framed keeping in mind the existing research work,
recently undertaken by various senior professors, senior industry professionals,
economists and full time researchers interested in the area of study undertaken in
this synopsis. Research Methodology along with sources of data is also outlined in
this introductory chapter.

No study can be done without any limitations. There are limitations in every study
conducted throughout the universe. This study is of no exception. Therefore,
limitations of the study are also included in this chapter.