Altman Z-Score flags distress in LIC, 7 PSU banks

What the Z-Score screen actually says Mumbai: The Altman Z-Score screen has placed [LIC India](/stock/LICI) (NSE: LICI) and seven public sector banks in the distress zone, with Z-scores between -0.83 and 0.37. That is far below the 1.8 cutoff Edward Altman set for non-financial companies. The list runs from [Central Bank of India](/stock/CENTRALBK) through [Canara Bank](/stock/CANBK), [Bank of Baroda](/stock/BANKBARODA), [Punjab National Bank](/stock/PNB), [Bank of India](/stock/BANKINDIA), [UCO Bank](/stock/UCOBANK) and [Union Bank of India](/stock/UNIONBANK). The screen is a flag, not a verdict. The mechanics matter. Altman's formula blends working capital, retained earnings, operating income, market value of equity and sales against total assets and total liabilities. Banks and insurers run high liabilities by design. Deposits are liabilities. Policyholder funds are liabilities. That pushes the score down even when capital buffers are adequate. Altman's original sample excluded financial firms for this reason. Sector comparison: high debt, high FairStock scores The debt-to-equity ratios for these seven banks sit well above 12x because deposit liabilities dominate their balance sheets. [Canara Bank](/stock/CANBK) has a FairStock Score of 83. [Bank of India](/stock/BANKINDIA) sits at 81. Both are above the 70 threshold FairStock uses for fundamental quality. The same companies show sub-1.8 Z-scores. That is a direct collision between an accounting ratio built for industrial firms and a screen tuned for financials. Private sector banks would also print weak Z-scores under this lens. HDFC Bank and ICICI Bank carry deposit-heavy balance sheets. The difference is that state-run banks hold a larger share of government securities. That creates mark-to-market sensitivity, which flows through retained earnings quarter by quarter. The Z-score does not measure asset quality improvement. For the PSU bank pack, gross NPA ratios have fallen from double digits in 2018 to be...