CAMELS RATING SYSTEM: A TOOL FOR ENHANCING PERFORMANCE AND STABILITY OF INDIAN BANKS

Abstract

The CAMELS Rating System is a widely recognized framework used to assess the performance and stability of financial institutions. This paper explores the significance of the CAMELS system in the context of the Indian banking sector, analyzing its components, application, and impact on banking performance. By evaluating capital adequacy, asset quality, management efficiency, earnings, liquidity, and sensitivity to market risks, the CAMELS framework helps regulators and stakeholders assess the financial health of banks. While the system offers valuable insights, challenges such as high non-performing assets, inconsistent data quality, and limited applicability to smaller institutions hinder its optimal usage. The paper also discusses the evolving role of CAMELS in response to India’s dynamic financial environment, including the rise of digital banking and the need for customer-centric metrics. In conclusion, while CAMELS remains a critical tool for assessing Indian banks, its effectiveness can be enhanced by addressing existing challenges and adapting it to contemporary banking needs.