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    Question

    In the CAMELS approach of risk assessment used for

    evaluating financial institutions, what does the letter ‘C’ stand for?
    A Capital adequacy Correct Answer Incorrect Answer
    B Credit Correct Answer Incorrect Answer
    C Core Banking System Correct Answer Incorrect Answer
    D Customisation Correct Answer Incorrect Answer
    E Corporate Correct Answer Incorrect Answer

    Solution

    The CAMELS rating system is a supervisory tool widely used by regulators to assess the soundness and risk profile of banks and financial institutions. It evaluates institutions across six key parameters: • C – Capital Adequacy → Measures whether the bank has sufficient capital to absorb unexpected losses and support growth. • A – Asset Quality → Examines the level of NPAs and credit risk. • M – Management → Assesses the quality, capability, and governance of management. • E – Earnings → Evaluates profitability and sustainability of income. • L – Liquidity → Reviews ability to meet short-term obligations. • S – Sensitivity → Examines exposure to market risks like interest rate and forex fluctuations. Thus, in CAMELS, the C represents Capital Adequacy.

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