Z Score Estimation for Indian Banking Sector

Abstract

From traditional times the Z score values have been constantly used for prediction of Bankruptcy. This has been vital to both the lenders and investors whose returns are based on solvency estimates. The terms of credit have gone a U turn from the traditional times to the modern scenario today. The basic concern of prediction is to evaluate the terms of credit and ensure repayment safely. Z score has been used as a tool to evaluate the credibility of the firms. This paper provides the Z score value for the public sector banks. This value is useful when these banks demand loans from the RBI or any other funding agency. The usage of back propagation neural network is to forecast the internal parameters of Z score and then use these internal parameters to forecast the Z score value up to 2020. Thus the paper emphasizes the usage of BPNN for prediction of bankruptcy for public sector banks in India.  Looking into the scenario of business today the enhancing uncertainty scenario takes away the surety of existence from firms. Perhaps to be sure of the longevity of the firm becomes the prime issue of concern by all the business houses. The viability of banks holds prime importance as it relates to financial investments, funding, capacity building and expansion by ploughing back profits. Z score has been used as a tool to evaluate the credibility of the firms. This paper provides the Z score value for the public sector banks. This value is useful when these banks demand loans from the RBI or any other funding agency. The usage of back propagation neural network is to forecast the internal parameters of Z score and then use these internal parameters to forecast the Z score value up to 2020. Thus the paper emphasizes the usage of BPNN for prediction of bankruptcy for public sector banks in India. The research focus on three banks that are considered in the big, medium and small capital norms being Oriental Bank of Commerce, Punjab National Bank and State Bank of India. The paper is divided into sections. Section I gives the introduction about the research done in the paper, Section II discusses the bankruptcy scenario related to Z score, Section III describes the model design and methodology, Section IV discusses the BPNN Model application in Z Score for Public Sector banks in India, Section V evaluates the predictions of internal parameters of Z score, Section VI brings forth the findings and the last Section VII sums up the research.