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      Question

      In the CAMELS approach of risk assessment used for

      evaluating financial institutions, what does the letter β€˜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: β€’ C – Capital Adequacy β†’ Measures whether the bank has sufficient capital to absorb unexpected losses and support growth. β€’ A – Asset Quality β†’ Examines the level of NPAs and credit risk. β€’ M – Management β†’ Assesses the quality, capability, and governance of management. β€’ E – Earnings β†’ Evaluates profitability and sustainability of income. β€’ L – Liquidity β†’ Reviews ability to meet short-term obligations. β€’ S – Sensitivity β†’ Examines exposure to market risks like interest rate and forex fluctuations. Thus, in CAMELS, the C represents Capital Adequacy.

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