Measuring financial performance using camel’s model: A comparative analysis of Indian public and private sector banks

Abstract

Performance evaluation of the banking sector is an effective measure and indicator to check the soundness of economic activities of an economy. In the present study an attempt has been made to evaluate the performance & financial soundness of selected Public and Private Sector Banks in India for the period 2016/17 and to suggest necessary measures to improve weaknesses of a bank. CAMEL approach has been used to examine the financial strength of the selected banks. Composite Rankings and Independent two sample t-test has been applied here to reach conclusion through the comparative and significant analysis of different parameters of CAMEL. The findings of the study show that Public Sector Banks, viz. Central Bank, Indian Bank, State Bank of India, Bank of Baroda and Bank of India has been ranked at the top five positions compared to other banks under the study in their financial performance during the study period. On the other hand, IDBI Bank is at a lowest position under the study. The Private Sector Banks, namely, IDFC Bank, HDFC Bank, Kotak Mahindra Bank, Yes Bank and ICICI Bank shared the top five positions. On the other hand, RBL Bank is at lowest position under the study. The empirical results show that there is a statistically significant difference between the CAMEL ratios of the selected Public Sector Banks, Private Sector Banks in India, thus, signifying that the overall performance of within and between Public Sector Banks and Private Sector Banks are different.  Results depict that the excellent performance of the Banks in regard with various parameters of CAMEL can be attributed to the adoption of modern technology, banking reforms, and good recovery mechanisms. However, the Banks also need to improve its position with regards to a few sub-parameters (ratios) of CAMEL approach to strengthen their weak areas.