Altman Z-Score Distress Flag Hits LICI, PSU Banks

I ran the Altman Z-score screen on India’s state-owned financials over the weekend and the results could easily be mistaken for a typo. [LICI](/stock/LICI) (NSE: LICI), the country’s largest insurer, prints a Z-score of -0.83. That is not just below the 1.8 distress line; it is negative. Several public sector banks sit in a tight band between 0.33 and 0.37, also deep in the red zone. The numbers are ugly, but the Altman Z-score distress flag is a screening check, not a final verdict. I’ll repeat that because it matters. A negative score does not mean LICI will fail tomorrow. Edward Altman built the model in 1968 on US manufacturing bankruptcies. It was never designed for insurers or deposit-funded lenders. The model sees high debt-to-equity ratios and punishes them hard. Banks run on deposits, which the formula treats as liabilities. So a PSU bank with a double-digit debt-to-equity ratio will almost always look distressed. That’s a feature, not a bug in the score, but it is also a reason not to sell your holdings based on this flag alone. The Altman Z-Score Distress Flag: What It Screens For The Altman Z-score combines working capital, retained earnings, operating profit, market value, and sales against total assets and liabilities. Scores below 1.8 historically mark companies with elevated bankruptcy risk. Scores above 3.0 look safe. Between those lines is a gray zone. For Indian financials, the screen is harsher because their balance sheets are structured differently from an auto parts maker. [Bank of Baroda](/stock/BANKBARODA) (NSE: BANKBARODA), [Canara Bank](/stock/CANBK) (NSE: CANBK), and [Punjab National Bank](/stock/PNB) (NSE: PNB) all carry double-digit debt-to-equity ratios and Z-scores in that 0.33 to 0.37 range. [Central Bank of India](/stock/CENTRALBK) (NSE: CENTRALBK), [Bank of India](/stock/BANKINDIA) (NSE: BANKINDIA), [UCO Bank](/stock/UCOBANK) (NSE: UCOBANK), and [Union Bank of India](/stock/UNIONBANK) (NSE: UNIONBANK) sit nearby. That is a lot o...