A Panel Data Analysis of Small Finance Bank’s Profitability Using CAMELS Model

Abstract

Small Finance Banks (SFBs), introduced by the RBI to advance financial inclusion, have become important contributors to India’s banking landscape, making it essential to examine how their CAMELS parameters influence profitability. The present research work analyses the quarterly financial performance of five Small Finance Banks for the period 2020-2021 to 2024-2025 using the CAMELS framework. The quarterly secondary data is collected from the official websites of the selected banks and RBI websites. All the CAMELS variables (capital adequacy, asset quality, earning quality, management efficiency, liquidity, and sensitivity) served as independent variables, while Profitability was measured using the return on assets (ROA) as dependent variable. Correlation analysis and Panel data regression analysis were employed to test the hypotheses. ROA is positively correlated with CRAR, PCR, PPE, Operating Profit to Working Fund Ratio, and Sensitivity, but negatively correlated Advances to total assets ratio, Net NPA to Net advance ratio, Interest Income to total income ratio, and Liquidity. However, the result of panel regression analysis reveals that CRAR has no significant impact on the profitability but Advances to total assets ratio has a positive significant impact on the profitability. Asset quality has a significant negative impact on the profitability. Cost Income ratio has a negative significant impact on the ROA and Profit per employee has a positive significant impact on the ROA. Earning quality has a significant positive impact on the ROA. Credit deposit ratio shows a negative significant impact on the profitability and Liquidity coverage ratio shows a positive significant impact on the profitability. Sensitivity has a positive significant impact on the ROA.