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Evaluation of riskiness of Indian Banks and probability of book value insolvency

Author

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  • Sinha, Pankaj
  • Taneja, Varundeep Singh
  • Gothi, Vineet

Abstract

Recently, a lot of questions were raised about the financial health of commercial banks in India. This paper analyzes the Indian banks' riskiness and the probability of book-value insolvency under the framework developed by Hannan and Hanweck (1988). A risk index, known as Z score, for Global Trust Bank that became insolvent in 2004 suggests that the framework developed by Hannan and Hanweck (1988) is also relevant in the Indian context. For a random sample of 15 Indian Banks (public & private sector), we determine the riskiness/probability of book value insolvency over the years and also carry out a relative comparison between public and private sector banks in India. Results obtained in the study show that the probability of book value insolvency of Indian Banks has reduced over years and the probability of book value insolvency is lower in case of public sector banks in comparison to private sector banks.

Suggested Citation

  • Sinha, Pankaj & Taneja, Varundeep Singh & Gothi, Vineet, 2009. "Evaluation of riskiness of Indian Banks and probability of book value insolvency," MPRA Paper 15251, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:15251
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    File URL: https://mpra.ub.uni-muenchen.de/15251/1/MPRA_paper_15251.pdf
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    References listed on IDEAS

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    1. J. Nellie Liang & Donald T. Savage, 1990. "The nonbank activities of bank holding companies," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue May, pages 280-292.
    2. Ralph C. Kimball, 1998. "Economic profit and performance measurement in banking," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 35-53.
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    Cited by:

    1. Sinha, Pankaj & Sharma, Sakshi & Sondhi, Kriti, 2013. "Market Valuation and Risk Assessment of Indian Banks using Black -Scholes -Merton Model," MPRA Paper 47442, University Library of Munich, Germany.
    2. Liu, Zhen Jia, 2015. "Estudo cross-country sobre os fatores determinantes da crise financeira bancária," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 55(5), September.
    3. Sinha, Pankaj & Sharma, Sakshi, 2016. "Relationship of financial stability and risk with market structure and competition: evidence from Indian banking sector," MPRA Paper 72247, University Library of Munich, Germany.
    4. Shajari , Parastoo & Mohebikhah , Bita, 2012. "Financial Stability in Islamic Banking System the Capacity to React to Current World Wide Crisis," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 6(4), pages 133-166, July.

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    More about this item

    Keywords

    Riskiness; insolvency; Z-statistic;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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