Year: 2021 | Month: December | Volume 66 | Issue 4

An Empirical Study of Indian Commercial Banks through Financial Distress Models

Niharika Prasad Saurabh Singh


This study has predicted commercial banks’ financial distress in India using the Altman Z-score model and the Emerging market model. All the Public sector banks listed in the National stock exchange were considered in this research from 2010 to 2019. The Altman Z-score formula is Z = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5. The criteria for assessing a Z-score are > 2.99 is categorized as a safe zone; healthy banks will fall under this category. 1.80 < Z-score < 2.99 is the gray zone, banks falling under this category have a chance of being safe as well as going bankrupt. Z-score < 1.80 is a distress zone; banks’ falling under this category are at high risk of bankruptcy and may go bankrupt within two years. Emerging market model is Z = 3.25 + 6.56X1 + 3.26X2 + 6.72X3 + 1.05X4. The criteria for assessing emerging market Z-score are > 2.60 is categorized as a safe zone; 1.10 < Z-score < 2.60 is the gray zone and Z-score < 1.10 is a distress zone. Independent t-test was used test the hypothesis of the study. The results of both models (Altman Z-score model and Emerging market Z-score model) separately provided outcomes that were two extremes in the opposite direction. The findings of the emerging market Z-score model were more relatable to reallife observed (during the period selected for study) scenarios in the banks, i.e., both public sector as well private sector banks are in the safe zone.


  • This study predicted the financial distress of Indian Commercial banks using Altman Z-score model and Emerging Z-score market model.
  • Five ratio based Altman Z-score model developed in 1968 was unable to predict the financial distress of public and private sector bank of India and showed all banks are in distress zone.
  • Emerging market Z-score model predicted that Indian commercial banks are in safe zone indicating that the model fitted well for the emerging market like India.

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