cAMELS Rating System

What Does CAMELS Rating System Mean? An international bank-rating system where bank supervisory authorities rate institutions according to six factors. The six factors are represented by the acronym "CAMELS." Investopedia explains CAMELS Rating System The six factors examined are as follows: C - Capital adequacy A - Asset quality M - Management quality E - Earnings L - Liquidity S - Sensitivity to Market Risk Bank supervisory authorities assign each bank a score on a scale of one (best) to five (worst) for each factor. If a bank has an average score less than two it is considered to be a high-quality institution, while banks with scores greater than three are considered to be less-than-satisfactory establishments. The system helps the supervisory authority identify banks that are in need of attention.

Camel Analysis
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) was 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, wich 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. The Committee certain recommendations and based on such suggetions 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. It recommended that the banks should be rated on a five point scale (A to E) based on th elines of international CAMELS rating model. CAMELS evaluates banks on the following six parameters :(a) Capital Adequacy :Capital adequacy is measured by the ratio of capital to risk-weighted assets (CRAR). A sound capital base strengthens confidence of depositors (b) Asset Quality : One of the indicators for asset quality is the ratio of non-performing loans to total loans (GNPA). The gross non-performing loans to gross advances ratio is more indicative of the quality of credit decisions made by bankers. Higher GNPA is indicative of poor credit decision-making. (c) Management : The ratio of non-interest expenditures to total assets (MGNT) can be one of the measures to assess the working of the management. . This variable, which includes a variety of expenses, such as payroll, workers compensation and training investment, reflects the management policy stance. (d) Earnings : It can be measured as the the return on asset ratio. (e) Liquidity : Cash maintained by the banks and balances with central bank, to total asset ratio (LQD) is an indicator of bank's liquidity. In general, banks with a larger volume of liquid assets are perceived safe, since these assets would allow banks to meet unexpected withdrawals. (f) Systems and Control Each of the above six parameters are weighted on a scale of 1 to 100 and contains number of subparameters with individual weightages

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How to avoid 'straining at a gnat and swallowing a camel When an organisation decides to put energy into sustainability issues, it is vital to get a clear picture of the environmental, ethical and social impacts of current operations. By getting it right from the start, a business can achieve environmental, ethical and economic yields all at the same time. In parallel, credibility and participation enable the business to take an active role in building a sustainable society. Our 'Camel analysis' aims to map out a company's strategically important sustainability issues. In this context, 'strategically important' means both the aspects of company operations that have the greatest impact on climate change, environmental or social issues, and also those aspects that it is most effective for a company to mitigate. The analysis consists of two parallel studies from different perspectives: the product perspective and the operational perspective

The product perspective Life cycle assessment is a study that aims to evaluate the environmental impacts that a product or group of products has and to identify the phases of a product's life cycle that constitute the greatest impacts. In other words, life cycle assessment adopts the approach of evaluating a product from cradle to grave. The product perspective originates from the concepts that: the customer wants an assurance that a certain product has not and will not cause damage from a sustainability perspective during its production, use or disposal. A business should be able to derive its environmental impacts from a given product. The total impacts on sustainability of a product must be taken into consideration.

The operational perspective The operational perspective is implemented to develop a full picture of the company's impact on the environment and other aspects of sustainability. The aim is both to map out the impacts from different parts of company operations and to raise awareness and action amongst a handful of key people in the company at an early stage. These key people help to map out company operations which has the following benefits: the mapping follows the company's existing organisational structure sustainability issues are identified in areas over which the company has control and decision making power.

The results of the parallel studies are analysed, evaluated and weighed against each other based on established ecological principles. The 'Camel analysis' results in a ranked list of areas, which are judged to have the greatest impact on future sustainability. Our life cycle assessment draws on data from nine international databases and from U&W's own measurements. Peter Wrenfelt will happily tell you more about this work.