PERFORMANCE ANALYSIS & EVALUATION OF USING CAMEL MODEL: A COMPARATIVE STUDY BETWEEN HDFC & AXIS BANK (KEY IJP************618)

• Aman Raj

Abstract

AbstractOne effective method of determining the stability of an economy's financial sector is to evaluate the performance of the banking sector. This study aims to assess the financial stability and performance of a few selected private banks in India in 2023. The banking sector is essential to any economy because it spurs expansion and progress. Financial institutions must assess their performance as they navigate shifting economic conditions. This master's thesis uses the CAMEL model (Capital Adequacy, Asset Quality, Management Quality, Earnings, and Liquidity) to evaluate the performance of two prominent Indian private sector banks, HDFC Bank and Axis Bank, in great detail.Here, the use of Composite Rankings, Average, and Covariance has resulted in a conclusion following a thorough and significant analysis of the several CAMEL criteria. Axis Bank is ranked first by the CAMEL analysis, followed by ICICI Bank. Kotak Mahindra took third place. Out of all the selected banks, HDFC Bank comes in fourth, and IndusInd Bank comes in last. This study uses the CAMEL model to evaluate and analyze the performance of two of the top private banks in India, Axis Bank and HDFC Bank. Capital Adequacy, Asset Quality, Management Efficiency, Liquidity, and Earnings are often referred to as CAMEL. When evaluating the stability and soundness of a bank's finances, several elements are essential.The research employs financial data to evaluate each bank's performance under the five CAMEL parameters. This allows for a comprehensive understanding of their strengths and weaknesses. The study aims to identify which bank exhibits better financial health based on the CAMEL ratings.By comparing HDFC Bank and Axis Bank, the study sheds light on the competitive landscape of the Indian private banking sector. It reveals which bank demonstrates stronger capital adequacy, asset quality, management efficiency, liquidity, and profitability. This information can be valuable for investors, depositors, and policymakers in the Indian financial sector.IntroductionThe banking sector is an essential component of the financial system and is important to the expansion of national economies. According to Said and Tumin (2011), it encourages capital formation, innovation, and monetization while also facilitating monetary policy. The Indian banking industry has seen numerous changes as a result of the liberalisation process. Public sector banks have dominated the banking sector in India ever since the nation's major banks were nationalized by the government in 1969. The global financial crisis of 2008 did not damage the Indian banking sector, but the ensuing recession (with the exception of 20092010) put strain on bank capital and profitability. Asset quality and efficiency metrics have improved for private sector banks, but these metrics have declined for public sector banks (Baru, 2010). A bank's sound financial standing and performance review are important for depositors, shareholders, staff, and the nation's economy as a whole since they establish the bank's capacity to compete in the industry and play a crucial part in the sector's growth.It is critical to assess banksoverall performance through the application of a regulatory framework for banking supervision. The CAMEL rating system is one of these supervisory information measures that was implemented.As the backbone of the economy, the banking industry is vital to India's financial system since it mobilises savings and directs them towards profitable ventures. Important financial services like deposit taking, lending, payment processing, and a range of investment products are all provided by banks. By giving a sizable portion of the populace access to banking services, they additionally significantly contribute to the advancement of financial inclusion. Furthermore, banks help the economy thrive by providing people and companies with the capital they need to grow and prosper. All things considered, the banking industry plays a crucial role in India's financial system by facilitating the effective distribution of capital and resources, which in turn promotes economic expansion and advancement.The banking industry is one of the most important national market instruments. The banking sector has seen tremendous transformation as a result of market liberalization and economic reforms, which have ushered in a new era of banking and increased technological sophistication and competitiveness. Since then, every bank has put in countless hours to develop into a stable, profitable, and highly functional entity that plays a unique role in the national economy. The financial system's stability is an indicator of the country's economic growth. Deregulatory measures in the practical and economic domains.The primary financial intermediaries in India are its banks, which have fared well during the global financial crisis based on their yearly credit growth and profitability. The two types of growth mechanisms that are possible are organic and inorganic. Organic growth, sometimes referred to as internal growth, occurs when a company grows the next year by utilizing the revenue generated by its own operations. While this type of growth happens gradually over several years, companies want to develop faster. It is believed that external growth, commonly referred to as inorganic growth, is the quickest and most ideal form of expansion. Inorganic growth is the process by which a business grows through an acquisition or merger.One plus one equals more than two, which is the main reason for the merger, and this rationale convinces the corporations to come together in trying times. Through mergers and acquisitions, businesses can benefit from increasing market share and cost efficiency. In order to grow their businesses and cut costs, banks are turning to mergers and acquisitions as a means of expanding their operations, gaining market share, growing more quickly, and creating economies of scale that will boost their competitiveness. Since many people in today's society lack even the most basic understanding of finance, they need to know how the banks are doing financially in order to make wise savings decisions. They might speak for the government, the populace at large, managers, investors, employees, owners, lenders, and clients.