Assessing the Strength of India’s NBFC Giants: A CAMEL Model Analysis

Abstract

Non-banking financial companies (NBFCs) strengthen the bank industry’s role in servicing the ever-growing liquidity requirements of the business sector by providing loans to outsiders and local lenders. They are frequently referred to as “shadow banks” since they operate similarly to banks but with less oversight from regulators. Apart from a few financiers, they are prohibited from accepting private deposits, forcing them to obtain cash through bonds or bank loans. Their structure is more adaptable than that of banks. The objective of the research is to appraise the performance of the five top non-banking financial corporations (NBFCs) during five years from 2019 to 2023. For the analysis of performance, the CAMEL model has been used. The results revealed that Muthoot Finance excels in financial stability, asset utilization, and profitability, while Indian Railway Finance Corporation, despite strong capital ratios, faces risks from high debt reliance and low asset turnover. Cholamandalam Investment Finance leads in liquidity management, with other NBFCs maintaining adequate levels. However, the study discovered that a company's performance cannot be evaluated based solely on market capitalization. Instead, it should consider a range of factors, including capital, asset quality, efficiency of management, earning capacity, and sufficient liquidity, as detailed in CAMEL Model.