Performance of Select Public Sector Banks Using Cramel Model

For the Indian banking industry, Jul 19, 1969, was a landmark day, on which nationalization of 14 major banks was announced that each had a minimum of ` 500mn and above of aggregate deposits. In 1980, eight more banks were nationalized. In 1976, the Regional Rural Banks Act came into being, that allowed the opening of specialized regional rural banks to exclusively cater to the credit requirements in the rural areas. These banks were set up jointly by the central government, commercial banks and the respective local governments of the states in which these are located. It is clear that the banking system occupies an important position in an economy. Bankers are regarded as, “Public Conservators of Commercial Virtues.” A country with an effective banking system has a secure foundation of economic development. Traditionally, analysts often measures banks financial performance and management quality based on financial ratios and stock price.  Traditional financial measures such as profitability, liquidity and asset turnover are not enough to evaluate banks performance. This has reference to the study conducted by Dr.K. Ravichandran 1 et.al., on the topic of Ranking of Saudi Banks using CRAMEL Model.  He mentioned that “Nowadays, measuring bank efficiency and bank performance has become complicated, especially in the presence of agency problems and conflict of interest among stakeholders.  A unique technique that can capture financial and non-financial information to measure bank efficiency and bank performance is the current need of this complicated environment”. The study on the public sector banks in India for the period between 2004-05 and 2013-14, based on the data available in their annual reports. The public sector banks consist of 6 banks under SBI and its associate Group, 20 banks in nationalized bank group. To assess the performance of the banks under study, CRAMEL analysis was used. The acronym “CRAMEL” refers to six components of the banks that reflects the efficiency which are assessed as C - Capital Adequacy, R - Resource Deployed, A - Asset Quality, M - Management, E - Earnings and L - Liquidity.  To highlight the determinants of the financial performance of public sector Banks in India the researcher has used CRAMEL ratios. 1 Dr.K. Ravichandran and Dr.R.B. Sharma, “Ranking of Saudi Banks using CRAMEL Model”.  Journal of Economics and Finance, Vol.1, Issue No.1, Page No.18-26. ISSN Number : 2227-6254