The present study addresses the problem of book value insolvency by analyzing 47 Indian commercial banks (26 public sector and 21 private sector banks) over the period of 2006-07 to 2010-11. Book value insolvency score of banks is calculated using the Z-statistic, and further, the Z-statistic scores of public and private sector banks are compared. The study also analyzes selected internal determinants of book value insolvency. The results reveal that bank size is a major determinant that significantly affects the solvency of Indian commercial banks. On the other hand, it is found that increase in non-performing assets leads to high insolvency risk in Indian banks. The study concludes that public sector banks have efficient risk management and are safer than private sector banks.

The recent financial crisis experience has raised many questions on the real origin of the relentless and increasing vulnerability of the financial institutions not only in the US, but also all over the world. The banks are often at the center of a financial crisis due to the frail capital structure of banks to provide liquidity to both borrowers and lenders (Diamond and Rajan, 2001). The recent global crisis has demonstrated the importance of banks both at national and international levels. In the developing countries, the substance of banks is increasing continuously as banks are the major source of finance for a majority of firms and the main depository to encourage people for saving in these nations.

In India also, banks are the major financial intermediaries as they are playing a foremost role in the economic development of the country. Indian banks have performed sound during the recent financial turmoil, as is evident from the annual credit growth, profitability and trends in Non-Performing Assets (NPA) of the banks. This consistent performance of Indian banks has been achieved through the efforts of Reserve Bank of India (RBI). Indian banking system has grown through many significant changes during the post-reform period. Deregulation of interest rates, provisioning and capital adequacy, emergence of new private sector banks, and increasing use of technology have changed the whole picture of Indian banks.

Financial Risk Management Journal, A Comparative Study, Book Value Insolvency, Indian Commercial Banks, Z-Score Model, Non-Performing Assets (NPA).