“Financial Health of Indian Public sector and Private sector Banks: Bankometer Model”

Abstract

Capital flowing in the entire banking system is the pillar of the country’s financial development. If a country is stimulated by various risks such as monetary inflation, uneven economic development, financial crisis, unavoidable epidemics such as COVID-19, and insufficient currency supply, it is likely that due to the interconnectedness of these root causes, the banking system will fail. In order to maintain a sound and healthy banking system, all countries have formulated and implemented the Basel Committee norms. A bank’s liquidity and solvency profile is constructed and established according to the Basel Committee norms that assess each bank’s economic health. To analyze the position of capital flow, various techniques have been proposed and accepted by different authors around the world, such as the BANKOMETER model, OHLSON model, SPRINGATE model, ZMIJEWSKI model, ALTAMAN model, CAMEL model, etc.

In an attempt to assessing and evaluating financial performance of private and public sector banking institutions through ratio analysis, we selected the “Bankometer model” (S-Score), which is used to assess the financial performance of Indian public and private sector banks in terms of capital ratios. For this, in this study, we considered data for an eleven-year period (FY2012 to FY2022). Secondary data was collected from annual reports of banks, annual reports of Indian Bankers Association (IBA), monthly reports of RBI, SEBI, and NSE, various newspapers and websites discussing economic issues, and so forth. The research shows that, according to the Bankometer model, banks are highly liquid, maintain capital base adequacy, can easily manage debts, and generate good profitability and quality assets, but are exposed to various kinds of operational, financial, and political risks. The above discussions clearly indicated the applicability of this model as a warning tool and early alert system to measure the overall financial performance of banks.