Analysis of the CAMEL ratio in Anticipating Insolvency with the Altman Z-score Model: an evaluation of Indian private sector Banks (2015-2024)

Abstract

The study aims to anticipate insolvency in Indian private sector banks using the Altman Z-score model from the perspective of the CAMEL model. The CAMEL variables analyzed include “Capital Adequacy - the Capital-to-Risk-weighted Assets ratio (CRAR), Assets Quality - Non-Performing Assets (NPA), Management Efficiency- Cost to income (BOPO), Earning Quality - Return on Assets (ROA), and Liquidity - Financial Deposit Ratio (FDR)”(Lubis et al., 2025). Secondary data obtained from 2015 to 2024 for this study from relevant banks’ annual reports and the Money Control website. The study uses quantitative methods with panel data regression and linear regression with lagged variables based on annual reports from 2015 to 2024. The findings of the fixed effects model indicate that CRAR, ROA, and FDR have a significant influence on financial distress; however, NPA and BOPO are insignificant to the Altman Z-score. Additionally, linear regression with lagged variables suggests that all CAMEL variables reflect stable performance, indicating that the overall condition of selected private sector banks remains financially healthy, and some of the variables give an early warning signal of financial distress. These findings emphasize the necessity of continuous monitoring using both the CAMEL and the Altman Z-score model in order to identify and mitigate future risks in the banking sector.