Forecasting financial turbulence: An evaluation of corporate bankruptcy risk in banking firms

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Abstract

In a volatile financial environment, the early identification of bankruptcy risk is critical for maintaining economic stability, particularly in the banking sector. This study evaluates the financial health of Indian banking firms using Altman’s Z-score model, a time-tested tool for forecasting corporate bankruptcy. By analyzing financial data from 138 public and private banks over the period 2014–2023, the research reveals considerable fluctuations in asset quality, profitability, and capital adequacy. Public sector banks have shown improved financial stability in recent years, attributed to reforms and better risk governance, while private sector banks displayed greater variability in financial health. These findings support the relevance of sector-specific and regionally adapted models for risk assessment (Agarwal & Patni, 2019; Kumar & Ravi, 2007). Furthermore, the study contributes to the broader discourse on business failure by integrating insights from recent literature on legal and organizational determinants in emerging markets (Arzou & Kobiyh, 2025). This research underscores the importance of robust financial metrics and predictive tools in shaping informed policy decisions and investor strategies, especially in emerging economies where regulatory frameworks and market dynamics pose unique challenges.

Keywords: Bankruptcy Risk, Financial Distress, Banking Sector, Altman’s Z-Score, Financial Stability

Authors’ individual contribution: Conceptualization — T.K.S., P.K., and A.G.F.; Methodology — T.K.S. and P.K.; Software — T.K.S., P.K., and K.J.; Validation — T.K.S. and K.J.; Formal Analysis — T.K.S., P.K., and A.G.F.; Investigation — P.K., A.D., and K.J.; Resources — T.K.S. and P.K.; Data Curation — T.K.S. and P.K.; Writing — Original Draft — T.K.S. and A.G.F.; Writing — Review & Editing — T.K.S., P.K., A.D., and A.G.F.; Visualization — T.K.S. and K.J.; Supervision — T.K.S. and P.K.; Project Administration — K.J. and A.G.F.; Funding Acquisition — T.K.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: E44, G21, G33

Received: 01.05.2025
Revised: 12.08.2025; 02.09.2025
Accepted: 25.09.2025
Published online: 29.09.2025

How to cite this paper: Sahoo, T. K., Kumar, P., Das, A., Jindal, K., & Faiyyaz, A. G. (2025). Forecasting financial turbulence: An evaluation of corporate bankruptcy risk in banking firms [Special issue]. Risk Governance and Control: Financial Markets & Institutions, 15(3), 290–299. https://doi.org/10.22495/rgcv15i3sip11