Assessing the Financial Health of Urban Co-operative Banks using Altman Z-Scores

The long-term sustainability of banks is determined by measuring their financial health. This study was initiated due to the recent bank scams in the co-operative banking sector in Kerala, which raised a need to prove the financial stability of Urban Co-operative Banks (UCBs), which are an integral part of the Indian banking sector. The financial soundness of sixteen UCBs in Kerala is assessed in this study over ten years from 2012-13 to 2021-22 using Altman Z scores, re-estimated Altman Z scores using Binary Logistic Regression (BLR) and Multilayer Perceptron Neural Network (MLPNN). BLR was used to classify banks into grey and distress zones, and MLPNN was used to identify nonlinear relationships in the data. The study’s findings show that the re-estimated Altman Z score model using BLR exhibited high predictive accuracy in predicting distressed and non-distressed UCBs; therefore, it may be considered a reliable tool for predicting financial distress in UCBs. The MLPNN model needs further improvement in the inclusion of new variables, which will be included within the future scope of the research. The bank management and other stakeholders will be able to monitor the financial stability of UCBs with the help of the study findings.