Assessment of Financial Health of Select Private Sector and Foreign Banks in India: An Application of Bankometer Model

Post subprime crisis of (2007–2008) considering sustainability is the need of the hour. Now the banks have to prove that their business model is more sustainable and have to prove practically that their business model is contributing towards economic growth and stability of the country. Referring back to the Enron and Lehman Brothers that were considered very good which was highly impossible to be failed but finally went bankrupt, showing that companies operate in uncertain environment that always fluctuate, where in what becomes the strength in a business organization could be a weakness in the future. Therefore an analysis tool is required in which it is capable of showing weakness when the company is no longer the same within the environment, in taking proactive measures that are able to release the company from the possibility of experiencing financial distress and even bankruptcy. Banking sector is one of the fastest growing sectors in India. Evaluating Indian banking sector is not an easy task. To evaluate the performance of banking sector we have chosen the Bankometer Model developed from the IMF recommendations in 2000 in assessing the financial health of the banks under study. Eight banks of which four from private sector and four foreign banks have been considered for the study. The results show that the model Bankometer, was highly liquid, had strong capital, were able to manage debt/liability well, had good profitability and asset quality as well but was still lacking in the efficiency. These findings suggest that this model can be used as an early warning system in assessing financial performance of a bank.