Thursday, April 30, 2015



CAMELS rating is an international (primarily USA) supervisory rating system to classify a bank / financial institution's overall condition according to 6 factors. The six factors are represented by the acronym 'CAMELS'.

Six Components

When introduced in 1979, the CAMELS system had five components. A 6th component - sensitivity to market risk - was added in 1996. The regulators that year also added an increased emphasis on an organization's management of risk.

The 6 components are -

  • C - Capital adequacy
  • A - Asset quality
  • M - Management
  • E - Earnings
  • L - Liquidity
  • S - Sensitivity to market risk

CAMELS Rating Scale

The ratings range from 1 to 5, with -
  • 1 - being the highest rating (meaning least amount of regulatory concern)
  • 5 - being the lowest rating (meaning maximum amount of regulatory concern)
An overall CAMELS score of 3, 4, or 5 can expose a financial institution to any of the informal and formal enforcement actions available to the regulators.

Bank rating system in India

As per the recommendations of Padmanabhan Committee (1996), the banks in India should be rated on a 5 point scale of A to E, widely based on international CAMELS rating model. The committee has suggested that supervision of banks should focus on defined parameters of soundness, financial, managerial and operational.

Based on these guidelines, RBI has evolved the model for rating banks based on CAMELS. Each of the 6 components would be weighed on a scale of 1 to 100 and would contain several parameters with individual weightage.

Rating Scale in India
  • A - Sound in every respect
  • B - Fundamentally sound, but with moderate weaknesses
  • C - Financial, operational and/or compliance weaknesses that give cause for supervisory concern
  • D - Serious or moderate financial, operational and/or managerial weaknesses that could impair future viability
  • E - Critical financial weaknesses that render the possibility of failure in the near term

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