FINANCIAL PERFORMANCE OF BANK — A TAXONOMIC APPROACH BASED ON CAMELS PARAMETER & ITS MAJOR DETERMINANT
Description
This study utilized the ‘CAMELS’ parameter as identified by Narashimam Committee to judge the financial performance of selected 40 banks during the study period 2006 to 2018. Key parameters considered here to judge the financial performance of banks are Capital Adequacy Ratio (CAR), Non-performing Assets (NPA), Return on Assets (ROA), Return on Equity (ROE), Return on Investment (ROI), Cost of Deposits (COD), Net Interest Margin (NIM), Burden-asset ratio (BAR) and Credit-deposit Ratio (CDR). This paper has constructed a performance index of selected banks using Taxonomic approach. Constructed Financial performance index of these banks are regressed on following parameters, namely, bank size (Log assets), Interest income-loan ratio, Non-interest expenses-asset Ratio, equity-asset ratio to judge whether financial performance of banks depend on bank size, operating efficiency, nonbanking performance and solvency of these banks. Results showed that capital adequacy ratio continued to be very high for foreign banks in comparison with private banks. CAR of public sector banks were usually in the lower side. Public Sector banks have more NPA and foreign banks have low level of NPA in India. This study inferred that desperate credit-mobilization drive may be detrimental for financial performance of banks. Panel regression estimate had inferred that financial performance of these banks has improved with the increase in size of banks as well as equity holding of these banks. Expenses other than interest had affected the financial performance adversely though interest incomes of these banks did not have any impact on performance of these banks.