In the CAMELS approach of risk assessment used for

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.