Financial performance analysis of select Indian Public Sector Banks using Altman's Z-Score model

Abstract

This study aims to assess the financial performance of select public sector banks, having the highest level of gross non-performing assets, using the Altman's Z-Score model. It was found that all the select banks were in the safe zone, with the average Altman's Z-Score value being higher than the prescribed safe zone cut-off limit of 2.9. The Altman's Z-Score values differed significantly between the banks, possibly due to their varying asset sizes. However, when considered individually for each bank, the Altman's Z-Score did not exhibit statistically significant variation between the years, in the ten year study period. The Altman's Z-Score value, for the first five year period, was found to be statistically different from the last five year period when all the banks were pooled together. This may be on account of the increase in the non-performing assets in the last five year period. The results of linear regression analysis indicated that for every 1% increase in the gross non-performing assets, the Altman's Z-Score decreased by about 3.1%. However, for every 1% increase in the net profits, the Altman's Z-Score increased by about 15.31%. Hence the public sector banks not only have to keep their non-performing assets under control but also devise innovative ways to increase their profits.