A Comparative Analysis of Financial Performance on Banking sectors – A Camel Analysis

Banking industry has a vital role over the development of the economy. They not only offer loans, interest, borrow and lend money but also assure the customers with its safety measures and provide them financial advice. Such a bank’s performance in all aspects is ranked and judged by one of the popular methods – CAMELS. It refers to CCapital adequacy, A-Asset quality, M-Management, EEarnings, L-Liquidity, SSensitivity to market risk. This paper has the comparative study of “HDFC Bank” and “Bank of Baroda” on CAMEL analysis for a period of 5 years based on the annual reports of the selected banks.


Introduction
The banking sector regulates the monetary system of the economy. It deals with credit, accept deposits and its aim is to earn profit. A developing economy requires a sound and efficient banking system to meet the developing challenges and technologies in the society. For these purposes, various commercial banks, public sector and private sector banks are established. Banks also offer financial advice to the customers. The banking sector has a huge impact on the economy and it is a need to analyze the financial performance of the bank yet they are highly confidential. For this purpose, CAMELS rating analysis is used as a tool to determine the overall performance of the banks. The rating scale will be 1 to 5, 1 being the highest rating, strong performance, least degree of supervision concern and sound health and 5 indicates low rating, inadequate performance, weak health of a bank and having highest degree of supervisory concern. Sensitivity to market risk is not taken into consideration by CBI. [1][2][3][4][5].

Objective
To assess the profitability and liquidity position of the selected banks.

Statement of the Problem
The monetary system in the recent years, especially the banks have undergone several changes in the form of reforms, regulations and norms. Here, is an attempt to analyze the performance of the banks using CAMELS framework analysis as this model is widely used and accepted in today's scenario.

Scope of the Study
To study the importance of using CAMELS framework for performance evaluation in banking industry. The CAMEL model would be helpful for the government authorities to diagnose the financial performance of the banks through its six elements and suggest them steps for its sustainability.

 Brahma Chaudhuri (2018) -A Comparative
Analysis of SBI and ICICI: Camel Approach. State Bank of India (SBI) and ICICI Bank are the two largest banks in India in public and private sectors. To compare the financial performance of the banks, various ratios have been used to measure the banks' profitability, solvency position, and management efficiency. According to the analysis, both the banks are maintaining the required standards and running profitably. From the present study, ICICI has been a better performer in terms of profitability and management efficiency compared to SBI for the study period. This study will help enhance further research on the subject by researchers and academicians.  C. Vanlalzawna (2016) -A study of financial performance evaluation of banks in India.
Ranking of commercial banks is difficult to the extent that any type of ranking is subject to certain criticism as the ratio used for the purpose of ranking can be interpreted in the way one likes. CAMEL method of analysis provides simplicity, reader friendly version of presenting complex data regarding performance of players in the banking industry. The ranking system makes judging and analyzing the financial data of banks much simpler for the common man. Thus, through this particular data set, it can be established that private sector banks are at the top of the list in terms of different parameters compared to public sector banks. [6][7][8][9][10][11][12].

Analysis and Interpretation 3.1. Liquidity Asset to Total Asset Ratio:
Liquidity Asset to Total Asset = Liquidity Asset/ Total Asset.  Liquidity for a bank means the ability to meet its financial obligations as they come due. This proportion indicates the overall liquidity position of the bank.  HDFC bank has got smaller proportions of its liquid asset than BOB.
 Though BOB has a fall in every year's performance of liquid assets, it has a higher ratio when compared to HDFC.  So, we conclude that BOB maintains a higher proportion of liquid assets than HDFC bank.

Government Securities to Total Asset Ratio:
Government Securities to Total Asset = Government Securities/ Total Asset  BOB has made a less investment in government securities compared to HDFC.  HDFC has spent more of its assets in government securities ensuring their liquidity and safety.

Liquidity Asset to Demand Deposit Ratio:
Liquidity Asset to Demand Deposit = Liquidity Asset/ Demand Deposit

Findings
 BOB maintains a higher proportion of liquid assets than HDFC bank.  HDFC bank has spent more of its assets in government securities. This ratio shows the risk involved in the assets handled by the banks.  HDFC bank has maintained a higher liquid asset to meet the demand deposits.  BOB showed a good liquid asset to deposit ratio than HDFC.

Suggestion
HDFC bank would have maintained more assets than BOB. But its investment in government securities shows the risk bearing capacity.

Conclusion
This study is on the comparative financial performance of BOB and HDFC bank using camel analysis. Both the banks are in a stable and safe position. On comparing, HDFC bank has better asset quality and capital adequacy than BOB. But the management of employees and control is better in BOB than HDFC bank. From the present study, HDFC bank is a better performer than BOB in terms of capital adequacy, earning profitability compared to BOB. The significance of CAMEL ratios and its rating methodology can be published as a part of the annual report of the banks to get a better understanding of the following position, their management efficiency by the investors and the public.