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Multivariate Bank Performance Analysis using Standardized CAMEL Methodology and Fuzzy Analytical Hierarchical Process

Affiliations

  • Department of Management Studies, National Institute of Technology, Silchar – 788010, Assam, India

Abstract


Objective: To minimise the subjectivity of the CAMEL approach by applying FAHP for ranking the banks playing an important role in Indian financial system and also aims to help the investors to make informed decisions. Methods/Statistical Analysis: Banks listed in the CNX bank Index and National Stock Exchange are selected for the validating the model. The trading frequency of about 90 percent for the last six months and positive net worth are additional criteria imposed for the purpose. FAHP is used to assign weights to the main and Sub criteria designed for the purpose of ranking of the banks. TFN is used for the verbal judgements and the criteria weights are assigned to the CAMEL ratios and the final scores are calculated. Findings: CAMEL finds its worldwide applicability in measuring the performance of the banks but on subjective way. It is needed to provide objectivity in the subjective judgment to eliminate confusion. The FAHP approach is used to assign weights to the CAMEL parameters to judge the ranking positions of the Indian banks for the purpose. Use of FAHP in CAMEL ratios is a unique work which will help to rank the banks according to their performance and help to make informed decisions. As per the findings it is revealed that, in Indian financial system SBI's performance is highest and Central Bank's performance is lowest. The present work will complement the effort of the policy makers and general investors to understand the performance of the banks in the Indian financial system through an objective approach to the subjective judgmental process. Application/ Improvements: The study mainly concentrated on developing a bank rating model with the use of Fuzzy Logic for effective rating of the banks in India. The present scope can be extended to include larger data sets and diverse economic conditions.

Keywords

Bank Rating, CAMEL, FAHP, Multivariate Bank Performance Analysis.

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