• The Camel ratings is a US supervisory rating of the bank’s
• This rating is based on financial statements of the bank and
on-site examination by regulators like the FED, and the
Federal Deposit Insurance Corporation.
• This approach helps to evaluate banks with complete
coverage of factors affecting banks creditworthiness.
• This methodology is now industry standard
• It came in India in early 1990’s
• In 1995, RBI had set up a working group
• A rating system for domestic and foreign banks
based on the international CAMELS model was
• The Camel Rating system was adopted by NCUA in
(National Credit Administration in October 1987).
• It is used as an internal tool to measure risk and
allocate resources for supervision purposes.
• The last version of Camel Ratings System was
published in Letter to Credit Unions No.161,dated
Sensitivity to market
The purpose of CAMELS ratings is to determine a
bank’s overall condition and to identify its
strengths and weaknesses:
It is being used by the United States government in
response to the global financial crisis of 2008 to help
it decide which banks to provide special help for
and which to not as part of its capitalization
program authorized by the Emergency Economic
Stabilization Act of 2008.
• Each bank is accorded a composite rating that is predicated
upon the evaluation of the specific performances
• The composite rating is also based upon a scale of 1
through 5 in ascending order of supervisory concern.
• The Camels rating components have the following weights:
Capital Adequacy 20%
Asset Quality 20%
Sensitivity to market risk 10%
• The scale is from 1 to 5 with 1 being strongest and 5
being the weakest.
• Banks with a rating of 1 are considered most stable;
banks with a rating of 2 or 3 are considered average, and
those with rating of 4 or 5 are considered below average,
and are closely monitored to ensure their viability.
STRONG-indicative of performance that is significantly higher than
SATYSFACTORY- reflects performance that is average or above.
FAIR- represents performance that is flawed to some degree.
MARGINAL- reflects performance that is significantly at below
UNSATISFACTORY- indicative of performance that is critically
deficient and in need of immediate remedial attention.
Capital adequacy is measured by the ratio of capital to risk
A sound capital base strengths confidence of depositors:
• Nature and volume of assets in relation to total capital and
• Balance Sheet structure including off balance sheet items.
• Nature of business activities and risks to the bank.
• Asset and capital growth experience and prospects.
• Earnings performance and distribution of dividends.
• Asset represents all the assets of the bank,
current and fixed, loan portfolio, investments and real estate
owned as well as off balance sheet transactions
• Volume of problem of all assets
• Volume of overdue or rescheduled loans
• Ability of management to administer all the assets of the bank
• Large concentrations of loans, diversification of investments
• Loan Portfolio management, written policies, procedures internal
• Growth of loans volume in relation to the bank’s capacity
• Management includes all key managers and the Board of Directors:
• Quality of the monitoring and activities by the board and
• Ability to understand and respond to the risk and to plan for the
• Development and implementation of policies, procedures, risk
monitoring system, compliance with laws and regulations.
• Availability of internal and external audit function
• Overall performance of the bank and its risk profile
• All income from operations, non-traditional sources,
• It can be measured as the return on asset ratio.
Earnings are rated according to the following factors:
• Sufficient earnings to cover potential losses, provide adequate
capital and pay reasonable dividends.
• Composition of net income.
• Reliance on extraordinary items, securities transactions, high risk
• Non traditional or operational sources
• Cash maintained by the banks and balances with central bank,
to total asset ratio is an indicator of bank's liquidity.
Liquidity is rated based on the following factors:
• Sources and volume of liquid funds available to meet short term
• Volatility of deposits and loan demand.
• Interest rates and maturities of assets and liabilities.
• Access to money market and other sources of funds.
• Reliance on inter-bank market for short term funding.
• Management ability to plan, control and measure liquidity
Sensitivity to market risks is not taken into consideration by
Market risk is based primarily on the following evaluation
-Sensitivity to adverse changes in interest rates, foreign
exchange rates, commodity prices, fixed assets
• Nature of the operations of the bank
• Trends in the foreign currencies exposure
• Changes in the value of the fixed assets of the bank
• Importance of real estate assets resulting from loans