Interest-rate risk in the Indian banking system
Ila Patnaik () and
Ajay Shah ()
Risk and Insurance from EconWPA
Many observers have expressed concerns about the impact of a rise in interest rates upon banks in India. In this paper, we measure the interest rate risk of a sample of major banks in India, using two methodologies. The first consists of estimating the impact upon equity capital of certain interest rate shocks. The second consists of measuring the elasticity of bank stock prices to fluctuations in interest rates. We find that as of 31 March 2002, many major banks had economically significant exposures. Using the first approach, we find that roughly two-thirds of the banks in the sample stood to gain or lose over 25% of equity capital in the event of a 320 bps move in interest rates. Using the second approach, we find that the stock prices of roughly one-third of the banks in the sample had significant sensitivities.
Keywords: Interest rate risk; interest rate volatility (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cwa and nep-fin
Note: Type of Document - pdf; pages: 40. This paper measures interest rate risk in banking using maturity statements of banks(MVE approach) and stock market data (AMM models)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpri:0501003
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