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

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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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15251.

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Date of creation: 15 May 2009
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Handle: RePEc:pra:mprapa:15251

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Keywords: Riskiness; insolvency; Z-statistic;

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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.), 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, 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.

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