Assessing Financial Soundness of Commercial Banks using Altman’s Z-Score: A Comparison of Public Sector Banks and Private Sector Banks in India

Abstract

In emerging economies like India, the issue of the financial health of banking institutions has become more important since the deregulation of the banking industry and increased competition, especially due to increased stressed assets in the banking institutions in the last some years.In India, during the boom years, a large amount of easy credit was made available to the corporates, which resulted in the duel problem of the leveraged corporate balance sheet as well as the stressed assets in the banking system.The large build-up of sub-standard assets worsening the profitability and resulting in the loss of capital of these banks.The present research aims to assess the financial soundness of commercial banks in Indiafrom 2014-15 to 2018-19. Itexamines and compares Altman’s Z-score of the public sector banks and private sector banks in India. The study is based on the financial data of 39 commercial banks comprising 20 public sector banks and 19 private sector banks, uses parametric as well as non-parametric techniques to analyse and compare the financial soundness of public sector banks and private sector banks.