Interest Rate Volatility and Risk in Indian Banking, Issues 2004-2017
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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1st percentile 320 basis points 320 bps shock 42 banks assets and liabilities assume banks in India basis risk bps 320 bps Crore current accounts current and savings demand deposits demand loans different time buckets duration earnings equity capital exposure of banks floating rate forward rate agreements future cash flows Hence imputation procedure Indian banks interest rate derivatives interest rate risk interest rate shocks interest rate swaps 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 pattern maturity statement maturity structure measure the impact parallel shift 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 significant simulated spot yield curve Table term loans Value at Risk value of equity