ALTMAN MODEL AND FINANCIAL SOUNDNESS OF INDIAN BANKS

Financial soundness of banking sector is undoubtedly a backbone of every economy. Failure of giant banks may traumatize not only the domestic economy but can also put the globe at stake. Collapse of Lehman brothers is recent evidence to this contagious effect. In this context, it is very crucial to analyse the financial soundness of domestic banks. At present there are various methods which may be helpful to analyse financial position of banks like capital adequacy ratio, profitability, liquidity or hybrid model like CAMEL rating. An important model to analyse financial soundness / distress of any corporate house is Altman Z score model. But unfortunately it was least explored by researchers while studying financial soundness of banks. In this reference the present study attempts to apply Altman model to Indian banking industry. The study found that with only two exceptions the financial position of Indian banks found satisfactory. The two banks found somehow in distress position are Canara bank among public sector banks and Kotak Mahindra bank among private sector banks. However, capital adequacy ratio of both of these banks was sound enough as compared to its peer banks. The study suggests the use of hybrid model to make any conclusive remark to the soundness of any company.