AMELS RATINGS

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Click to edit Master subtitle style By:RAJ GANESH.K MBA-II
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INTRODUCTION
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. CAMELS evaluates banks on the following six parameters
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key components of CAMELS ratings

Capital adequacy Asset quality Management Earnings Liquidity Sensitivity to market
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Purpose of CAMELS ratings

The purpose of CAMELS ratings is to

determine a banks overall condition and to identify its strengths and weaknesses:

Financial Operational Managerial

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Rating Provisions

Each element is

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assigned a numerical rating based on five key

SCORING
Bank supervisory authorities assign each

bank a score on a scale of 1 (best) to 5 (worst) for each factor. considered to be a high-quality institution while banks with scores greater than 3 are considered to be less-than-satisfactory establishments.

If a bank has an average score less than 2 it is

The system helps the supervisory authority

identify banks that are in need of attention.

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Capital Adequacy
Capital adequacy is measured by

the ratio of capital to riskweighted assets . A sound capital base strengthens confidence of depositors

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Capital is rated based on the following considerations

Nature and volume of assets in relation to

total capital and adequacy other reserves sheet items, market and concentration risk

Balance sheet structure including off balance Nature of business activities and risks to the

bank

Asset and capital growth experience and

prospects dividends

Earnings performance and distribution of

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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 decisionmaking.

Asset represents all the assets of the

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bank, current and fixed, loan portfolio,

Rating factors
Asset quality is based on the following

considerations:

Volume of problem of all assets Volume of overdue or rescheduled loans Ability of management to administer all the

assets of the bank and to collect problem loans diversification of investments

Large concentrations of loans and insiders

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Management
Management includes all key managers

and the Board of Directors

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Rating factors
Management is the most important

element for a successful operation of a bank. Rating is based on the following factors:

Quality of the monitoring and support of the

activities by the board and management and their ability to understand and respond to the risks associated with these activities in the present environment and to plan for the future 4/22/12

Earnings
All income from operations, non-

traditional sources, extraordinary items

It can be measured as the the return

on asset ratio

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Rating factors
Earnings are rated according to the

following factors:

Sufficient earnings to cover potential losses,

provide adequate capital and pay reasonable dividends

Composition of net income. Level of expenses in relation to operations Reliance on extraordinary items, securities
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high risk activities

Liquidity
Cash maintained by the banks and

balances with central bank, to total asset ratio is an indicator of bank's liquidity. volume of liquid assets are perceived safe, since these assets would allow banks to meet unexpected withdrawals.

In general, banks with a larger

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Rating factors
Liquidity is rated based on the following

factors:

Sources and volume of liquid funds available

to meet short term obligations

Volatility of deposits and loan demand Interest rates and maturities of assets and

liabilities
Access to money market and other sources of
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Sensitivity to Market Risks

into consideration by CBI.

Sensitivity to market risks is not taken

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Rating factors
Market risk is based primarily on the

following evaluation factors:

Sensitivity to adverse changes in interest

rates, foreign exchange rates, commodity prices, fixed assets

Nature of the operations of the bank Trends in the foreign currencies exposure

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Changes in the value of the fixed assets of the

THANK YOU

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