Camel Model as a Tool for Evaluating Bank Performance: Evidence From India

The CAMEL model is a widely recognized framework for evaluating the financial performance and overall health of banks. Comprising five key components—Capital adequacy, Asset quality, Management efficiency, Earnings, and Liquidity—the model provides a comprehensive approach to assess both quantitative and qualitative aspects of banking operations. This review paper examines the application and relevance of the CAMEL model in the Indian banking sector, highlighting its role in regulatory oversight, performance monitoring, and risk management. The historical development of the model, from its origins in the United States to its adaptation in India, demonstrates its evolution and enduring significance. In India, the model has been employed extensively to evaluate public sector banks, private banks, regional rural banks, and cooperative institutions. Recent trends, including the integration of market risk sensitivity, digital banking assessments, and applications to non-traditional banks, illustrate its adaptability to contemporary challenges. While the model provides valuable insights for regulators, bank management, and researchers, certain limitations, such as the qualitative nature of management assessment and the static evaluation of some parameters, are noted. Overall, the CAMEL framework remains an indispensable tool for understanding banking performance, ensuring financial stability, and guiding strategic and regulatory decision-making in India’s dynamic financial landscape.