Interest Rate Volatility and Risk in Indian Banking (EPub) (Google eBook)
International Monetary Fund, Jan 1, 2004 - Business & Economics - 11 pages
The easing of controls on interest rates has led to higher interest rate volatility in India. Hence, there is a need to measure and monitor the interest rate exposure of Indian banks. Using publicly available information, this paper attempts to assess the interest rate risk carried by a sample of Indian banks in March 2002. We find evidence of substantial exposure to interest rates.
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10-year Rate 1st percentile 320 basis points 320 bps shock assets and liabilities assume banks in India basis risk current accounts Current and Savings demand deposits demand loans different time buckets duration earnings equity capital Estimating the Maturity exposure of banks floating rate forward rate agreements Four Sets future cash flows Hence Imputed Maturity Pattern Indian banks interest rate derivatives interest rate risk interest rate shocks interest rate volatility liabilities classified liabilities side liquidity statement loans and advances loans and term long rate March 31 market value maturity of 1–3 maturity structure net present value parallel shift Pattern of Cash percent of current percent of equity percent of savings PLR-linked Prime Lending Rate rate in India rate risk exposure rate risk statement repricing savings accounts savings and current savings deposits sets of assumptions simulated spot yield curve term loans Value at Risk value of equity