Performance Analysis of Banks in India– Discriminant Analysis with CAMELS Framework

India’s banking sector is facing the toughest challenge in recent times in terms of distressed loans. Higher write offs and provisioning has adversely affected growth in advances.Poor earnings growth by companies, slow pace of investments, risk aversion of banks due to rising bad loans, and availability of alternative funding sources for corporates pulled down credit growth during the year. A high and rising proportion of banks stressed loans, particularly those of public sector banks (PSBs) and the resulting increase in NPAs provisioning has weighed down credit growth. Hence it becomes important to analyse the banking sectors performance through appropriate criteria. This paper is an attempt to do a comparative evaluation of the performance of selected public sector and private sector banks in India using CAMELS framework. The paper also attempts to identify the ratios discriminating private sector and public sector banks. Four factors viz: D/E, Tier I capital ratio, Sensitive sector loans to total loans and net NPA ratio have emerged as significant discriminators between private sector and public sector banks.