National Conference on Marketing and Sustainable Development October 13-14, 2017

Financial Performance Analysis of Syndicate Bank Using Camel

Model

M. Susmitha
V. Mouneswari
AITS

The Indian banking sector is a backbone of the Indian economy. Indian banking sector widely includes
co-operative, commercial, nationalized, private and internationalized banks. In a present study an
attempt is made to evaluate the financial performance of the Syndicate bank using CAMEL model.
CAMEL model is basically an approach widely used to measure the performance of banking unit in and
outside India. CAMEL rating is a supervisory rating system originally developed in the U.S to classify a
bank’s overall condition. This model measures the performance of financial institution (approximately
8,000 institutions) especially banks, from all the important parameter like Capital Adequacy, Assets
Quality, Management Efficiency, Earning Quality and Liquidity and sixth component like market risk
added in 1997. The study is based on secondary data drawn from the annual reports of Syndicate bank.
For the purpose of evaluation, the data of FIVE years are analyzed by calculating various ratios related
to CAMEL rating. Statistical tools like average, standard deviation, coefficient of variation and
correlation is also calculated. It is found out that overall state of capital adequacy of Syndicate bank
was satisfactory. As far as portfolio is concern, the overall state of assets quality was good. The
management efficiency was also satisfactory. Overall earning capacity of the bank was good but the
overall state of liquidity was not satisfactory.
Keywords: Banking, Efficiency, Camel Model, Financial Performance

1. Introduction
Bank is a financial Institution of an economy is a multifaceted term. Finance is the life blood
of a modern economy. A financial system helps to mobilize the financial surplus of an
economy and transfer then two areas of financial deficit. The word „Bank‟ can be traced bank
to the GERMEN word “BANCK” and ITALIAN word “BANCO” which means „heap the
money‟. The Indian banking sector comprise of 27 public sector banks, 23 banks operating in
private sector and 50 foreign banks. Out of public sector banks 19 are nationalized, 6 are

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associated banks, 2 are IDBI and Bharathiya Mahila bank. Out of private sector banks 13 as
old private banks and 7 as new private banks. It is observed that the public sector banks have
remained unchanged in terms of number over the last decades. In 1980s, CAMEL rating/CEL
rating system was first introduced by U.S. supervisory authorities as a system of rating for
on-site examinations of banking institutions. Under this system, each banking institution
subject to on-site examination is evaluated on the basis of five critical dimensions relating to
its operations and performance, which are referred to as the component factors. These are
Capital, Asset Quality, Management, Earnings, Liquidity and sensitivity used to reflect the
financial performance, financial condition and operating soundness of the banking institution.
Syndicate was established 1925 in Udupi, the abode of lord Krishna.

Components of Bank’s Condition that are Assessed

1. Capital adequacy
2. Assets Quality
3. Management capability
4. Earnings capacity
5. Liquidity (asset liability management)

2. Literature Review
Kwan and Eisenbeis (1997) observed that Asset Quality is commonly used as a risk
indicator for financial institutions, which also determines the reliability of capital ratios. Their
study indicated that capitalization affects the operation of financial capitalization affects the
operation of financial institution. More the capital, higher is the efficiency. Godlewski (2003)
tested the validity of the CAMEL rating typology for bank's default modelisation in emerging
markets. He focused explicitly on using a logical model applied to a database of defaulted
banks in emerging markets. Said and Saucier (2003) examined the liquidity, solvency and
efficiency of Japanese Banks using CAMEL rating methodology, for a representative sample
of Japanese banks for the period 1993- 1999, they evaluated capital adequacy, assets and
management quality, earnings ability and liquidity position. Prasuna (2003) analyzed the
performance of Indian banks by adopting the CAMEL Model. The performance of 65 banks
was studied for the period 2003-04. The author concluded that the competition was tough and
consumers benefited from better services quality, innovative products and better bargains.
Sarkar (2005) scrutinized the CAMEL model for regulation and supervision of Islamic

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banks by the central banking Bangladesh. The study enabled the regulators and supervisors to
get a Sharia benchmark to supervise and inspect Islamic banks and financial institutions from
an Islamic perspective. Gupta and Kaur (2008)assessed the performance of 20 old and 10
new Indian Private Sector Banks on the basis of Camel Model for the period of five years i.e.,
from 2003-07. Sangmi and Nazir (2010) have taken two major banks of north India namely,
Punjab national bank and Jammu and Kashmir Bank on the basis of their role and
participation in influencing the financial condition of north India. They apply the camels
model of these two banks by taking the annual report data from 2001-2005, and found out
that both the banks were financially sound and suitable as their capital adequacy, asset
quality, management capability and liquidity is concerned. Siva and Natarajan (2011)
empirically tested the applicability of CAMEL norms and its consequential impact on the
performance of SBI Groups. The study concluded that annual CAMEL scanning helps the
commercial bank to diagnose its financial health and alert the bank to take preventive steps
for its sustainability. Chaudhry and Singh (2012) analyzed the impact of the financial
reforms on the soundness of Indian Banking through its impact on the asset quality. The
study identified the key players as risk management, NPA levels, effective cost management
and financial inclusion. As pal and Malhotra (2013) measured the financial performance of
Indian public sector banks‟ asset by camel model and applying the tests like ANOVA, f test
and arithmetic test for the data collected for the year 2007-2011. They concluded that the top
two performing banks are bank of Baroda and Andhra bank because of high capital adequacy
and asset quality and the worst performer is united bank of India because of management
inefficiency, low capital adequacy and poor assets and earning quality. Central bank of India
is at last position followed by UCO bank and bank of Maharashtra.

3. Research Methodology
Objectives of the Study
1. To analyze the financial position and performance of the Syndicate bank using the
CAMEL approach.
2. To Compare the Syndicate bank‟s Performance of 5 years.

Period of the Study

Data for the last five years, i.e. 2013 to 2017 are considered for the study.

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Sampling Technique
Convenience Sampling Technique is adopted for selecting the sample.

Research Design
The present study is descriptive research study. Descriptive research is a study designed to depict the
participants in an accurate way. As the name implies, descriptive research methods are used when the
researcher wants to describe specific behavior as it occurs in the environment. There are a variety of
descriptive research methods available; once again, the nature of the question that needs to be
answered drives which methods is used .Case study, defined as an in-depth study of an individual or
group of individuals.

Sources of Data
The secondary data has been used for the study, which is taken from the annual reports of the
Syndicate bank. Books, journals, articles, websites are also reviewed for the study.

Sampling
For conducting this study, Syndicate bank has been selected as sample based on the data
availability.

Statistical Tools
The statistical tools used for the study are enumerated below
1. Standard deviation.
2. Arithmetic mean.
3. Covariance.
4. Tools of Analysis
CAMEL Model has been used to analyze the data.
1. Capital Adequacy
1. Capital Adequacy Ratio
( )
Capital adequacy ratio =

2. Debt Equity Ratio

Debt Equity Ratio =

3. Total advances to Total Assets Ratio

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Total advances to total assets ratio =

4. Government Securities Investments: The government securities investments are

those banks kept in the securities for the security purpose in the form of cash, bills,
money market instruments etc.

2. Asset quality
1. Net NPA’S to Total Assets Ratio

Net NPA‟S to total assets ratio = ×100

2. Net NPA’S to total advances

Net NPA‟S to total advances = ×100

3. Total Investments to Total Assets Ratio
Total investments to total assets ratio =
4. Percentage Change in NPAs
( – )
Percentage change in NPAs = ×100

3. Management capability or Efficiency

1. Total Advances to Total Deposits Ratio
Total advances to total deposits ratio =

2. Profit Per Employee

Profit per employee = ×100

3. Business Per Employee

( )
Business per employee =

4. Return on Net Worth

Return on net worth = ×100

4. Earnings Capacity / Quality

1. Return on Assets Ratio
Return on assets ratio = ×100

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2. Net profit to Average Assets

Net profit to average assets =

3. Spread Ratio
Spread ratio =
( – )
Spread formula= ×100

4. Percentage Change in Net Profit

( )
PCNP= ×100

5. Liquidity
1. Government Securities To Total Assets
Government securities to total assets =
2. Liquid assets to Total Assets
Liquid assets to total assets = ×100I
3. Liquid assets to Total Deposits

Liquid assets to total deposits = ×100

5. Data Analysis And Interpretation

Capital Adequacy
Capital base of financial institutions facilitates depositors in forming their risk perception
about the organization. Also, it is a significant stricture for financial managers to maintain
adequate levels of capitalization. Capital adequacy is very useful for a bank to conserve &
protect stakeholders‟ confidence and prevent the bank from bankruptcy. Reserve Bank of
India prescribes banks to maintain a minimum Capital to risk-weighted Assets Ratio (CRAR)
of 9 % with regard to credit risk, market risk and operational risk on an ongoing basis, as
against 8 % prescribed in Basel documents. Following ratios has been taken into
consideration to judge the capital adequacy of Syndicate bank in AP State.

Table 1
Ratio/year 2013 2014 2015 2016 2017 Mean SD CV
CAR 23.0 27.40 23.0 -23.37 3.97 10.8 0.0 0.0
DER 6.70 4.70 4.70 0.0 0.0 3.38 0.0 0.0

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TATAR 0.7 0.7 0.7 0.7 0.52 0.664 0.22 0.33

GSTI 0.30 0.23 0.23 -0.35 0.06 0.104 0.23 2.21
Table 1 clearly reveals that average CAR was above the standard norms of 9.00% which is
appreciable. Apart from that the CAR remained above 10.00% all through the study period.
The average Debt – Equity ratio was decreased during the study period. Total Advances to
Total Assets Ratio is a measure of a bank‟s aggressiveness in lending. The average total
advances to total assets ratio reveals that the management of Syndicate bank had been
effective to convert its deposits into loans and advances which is quite appreciable.
Government Securities to Total Investments Ratio measures the amount of risk free assets
invested by a bank in government securities as a percentage of the total investments held by
the bank.

6. Assets Quality
Asset quality determines the healthiness of financial institutions against loss of value in the
assets as asset impairment risks the solvency of the financial institutions. The weakening
value of assets has a spillover effect, as losses are eventually written-off against capital,
which eventually expose the earning capacity of the institution. With this framework, the
asset quality is assessed with respect to the level and severity of non-performing assets,
adequacy of provisions, distribution of assets etc... Apart from this it also hampers
profitability as the provision has to be made on Gross NPAs. So at the end of the day quality
of assets jeopardizes the earning capacity of the bank. The following ratios were calculated to
judge the assets quality of the Syndicate Bank of AP state.

Table 2
Ratio/year 2017 2016 2015 2014 2013 Mean SD CV
NNPATAR 2.01 1.98 1.96 1.56 0.76 1.636 0.3 0.18
NNPATAD 2.56 2.01 1.86 1.43 0.73 1.71 0.316 0.18
TITAR 3.12 2.48 2.32 2.01 1.45 2.27 0.27 0.12
%Change
6.27 5.21 5.63 5.03 5.04 5.436 0.27 0.049
In NPAs

Table 2 indicates that Net NPAs to Total Assets ratio remained at average of 0.18%
throughout study period as the amount of net NPAs was increased year by year all through
the study period. Net NPAs to Total Advances ratio remained at throughout study period as
the amount of net NPAs was 0.18%all through the study period which is constant.% change

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in NPAs are increased year to year at 0.049% as it clearly indicates that the management of
above syndicate banks is very effective in providing loans to the customers. Total
Investment to total assets ratio is a standard measure to know the percentage of total assets
locked up in investments. The average total investments to total advances ratio was 0.8%in
investment.

7. Management Efficiency
Sound management is one of the most important factors behind Performance of any bank.
Management efficiency, another indispensable component of the CAMEL framework, means
adherence to set norms, knack to plan and be proactive in the dynamic environment,
leadership, innovativeness and administrative competence of the bank. The term
management efficiency involves the capability of management in generating business and in
maximizing profits. To analyze the possible dynamics of management efficiency affecting the
financial performance of the banks, the following ratios are calculated in the present study.

Table 3
Ratio/year 2013 2014 2015 2016 2017 Mean SD CV
TATDR 0.7 0.8 0.23 0.89 00.56 0.636 0.27 0.43
PPE 19.5 21.2 34.5 28.9 31.61 27.142 0.14 5.12
BPR 141.85 156.23 134.2 167.4 121.57 144.2 18.04 0.13
RONW 2.85 15.70 12.54 0.0 2.85 6.80 6.71 0.99

Table3shows that Assets turnover ratio indicates the total revenue earned for every rupee
of assets that bank owns. Total assets to total depositary ratio is fluctuated in during this
periods. Profit per employee ratio indicates the average profit generated per person
employed by a bank and also greater fluctuations. This ratio showed fluctuating trend
throughout the study period. The amount of net profit increased, while on the other hand the
profit per employee ratio is fluctuated to during this period. Business per employee ratio
indicates the efficiency of bank in terms of doing business with lesser number of employees.
Total business per employee ratio remained changed entire study period.

8. Earning Quality

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The quality of earnings represents the sustainability and growth of future earnings, value of a bank‟s
lucrativeness and its competency to maintain quality and earn consistently. Earnings and profitability
are examined as against interest rate policies and adequacy of provisioning.

The single best indicator used to gauge earning is the Return on Assets (ROA), which is net
income after taxes to total asset ratio. It basically determines the profitability of the bank. It
also explains the sustainability and growth in earnings in the future. Following ratios were
calculated for evaluating the earning quality of banks.

Table 4
Ratio/year 2013 2014 2015 2016 2017 Mean SD CV
ROA 0.93 0.12 0.50 -0.53 0.12 0.338 0.458 1.35
SR 0.04 0.05 0.0.2 0.01 -0.03 0.018 0.06 0.03
%change
8.21 -10.25 14.5 1.25 12.3 7.318 0.0 0.0
in Net Profit

Table 4 clearly reveals that Return on Assets Ratio is a key profitability ratio which
measures bank‟s efficiency in using its assets to generate net income. Return on assets ratio
showed fluctuating trend throughout the study period. In the beginning of the study, the ratio
decreased. Spread Ratio is expressed as a percentage of total assets. This is a key
profitability ratio especially in banking unit which measures bank‟s core income. Spread ratio
registered not stable trend during the entire study period. Percentage change in net profit is
being fluctuated throughout the study period. In 2014 is losses are incurred.

9. Liquidity
Liquidity is the bank‟s capacity to meet its short term obligations as well as loan
commitments. Liquidity is most important parameter especially in banking sector as banks
are considered as liquidity creator in the market. Therefore, if the liquidity management of a
bank is not proper, it can adversely affect the performance of the banks. In case of an
adequate liquidity position, the institution can obtain sufficient funds, either by increasing
liabilities or by converting its assets to cash quickly at a reasonable cost. Following liquidity
ratios were taken for the study.

Table 5
Ratio/year 2013 2014 2015 2016 2017 Mean SD CV

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GSTTA 3.31 0.4 0.41 0.31 0.57 3.03 0.001 0.001

LATTA 3.75 -5.1 3.2 2.56 9.25 2.732 0.32 0.12
LATTD 2.1 5.4 6.6 7.1 8.1 3.02 0.009 0.003
Table 5 indicates that Government Securities to Total Assets Ratio measures the amount
of risk free liquid assets invested by a bank in government securities as a percentage of the
total assets held by the bank. Government securities to total assets ratio shows the relatively
constant trend for the entire study period. Liquid Assets to Total Assets Ratio also indicates
the overall liquidity of the unit by indicating the proportion of liquid assets in total assets.
The lowest ratio was found. The amount of liquid assets decreased whereas on the other hand
the amounts of total assets increase. Liquid Assets to Total Deposits Ratio measures the
liquidity available to the depositors of the bank. This ratio also registered increased trend
during the entire study.

10.Conclusion
In case of capital adequacy, the banks which are having low ratios want to maintain a high
capital and safety assets to minimizing of risk weighted assets. In management capability the
least in total advances to total deposits are to convert more number of deposits into earning
advances. In asset quality, the NPA‟s-to-total assets ratio are to be maintain to very small up to
zero. In earnings capacity banks having least ROA should use assets in efficient manner to
increase earning capability of the bank. In liquidity the banks has to maintain high number of
liquidity assets to overcome short term obligations. Here in the present study the syndicate
bank capital adequacy is good and asset quality of this bank is increased due to decrease in
NPA‟s. Earning Quality is good. Business per employee ratio is increased year to year
because management efficiency is good Liquidity ratios are decreased because increase the
liquidity of the syndicate bank. The bank should attract the customers and to provide
financial facilities to increase the performance of the bank.

11. References
1. Kwan, S and Eisen be is, RA (1997),”Bank risk, capitalization, and operating efficiency”.
Journal of financial service researchvol.12 (2/3):pg.9-14.
2. Godlewski (2003) tested the validity of CAMELS rating… Indian private sector banks on
the basis of camel model, article-33 by KVN Prasad.

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3. Said and saucier (2003) used CAMELS rating. The CAMELS model for regulation and
supervision of Islamic banks by the central bank.39-related article, July 4, 2013.
4. Prasuna DG (2003),”performance Snapshot 2003-2004”.Character financial Analyst, vol.
X (11):pg6-13.
5. Sarkar, A. (2005), “CAMEL Rating System in context of Islamic banking: A
proposed‟S‟forshariah Framework”. Journal of Islamic economics and finance, vol1
(1):pg78-84.
6. Gupta and Kumar (2008), “A CAMEL Model Analysis of private sector banks in Idea”.
Journal of Gyan Management, Vol.2 (1):pg. 3-8.
7. Sangmi and Nazir (2010), sci.2010 volume .4(1), 40-55. Analyzing the commercial banks
in India: application of camel model.
8. Siva and Nataraz (2011), CAMEL rating model and consistency of the study period,
november4 2011.
9. Salija R, Sharma S and Dr. Lal R, “Impact of Merger on Financial Performance of Bank –
a case study of HDFC bank”, International Journal of Research in Finance and Marketing,
Vol. 2, Issue 2, Feb 2012.
10. Shar Amir Hussain, Shah Muneer Ali, and Jamali Hajan (Feb 2010), “Performance
evaluation of pre and post nationalization of the banking sector in Pakistan: An
application of CAMEL model, African Journal of Business Management, Vol. 5(3), pp.
747-761.
11. Chaudhary, Sahila and Singh, sultan (2012): “impact of reforms on the asset quality in
India Banking”, international journal of multidisciplinary vol.5 (2):pg.17-24.

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