EconPapers    
Economics at your fingertips  
 

Management of Interest Rate Risk in Indian Banking

Vighneswara Swamy ()

MPRA Paper from University Library of Munich, Germany

Abstract: In a move towards effective management of interest rate risk in Indian banking, in addition to the existing return on Interest Rate Sensitivity under Traditional Gap Analysis, a new return is being introduced to monitor the interest rate risk using Duration Gap Analysis (DGA), called Interest Rate Sensitivity under Duration Gap Analysis (IRSD). The DGA involves bucketing of all Risk Sensitive Assets (RSA) and Risk Sensitive Liabilities (RSL) as per residual maturity/re-pricing dates in various time bands and computing the Modified Duration Gap (MDG). One of the important things to note is that the RSA and RSL include the rate-sensitive off-balance sheet assets and liabilities as well. MDG can be used to evaluate the impact on the Market Value of Equity (MVE) of the bank under different interest rate scenarios. The past few years have seen banks’ foray into financing long-term assets, such as home loans and infrastructure projects. Banks have been allowed to raise funds through long-term bonds with a minimum maturity of five years to the extent of their exposure of residual maturity of more than five years to the infrastructural sector. This article attempts to illustrate the significance of interest rate risk management and approaches towards its management in the Indian context.

Keywords: Interest Rate Risk Management; Duration Gap Analysis; Maturity Gap Analysis; Risk Sensitivity; Modified Duration Gap; Banking Risk (search for similar items in EconPapers)
JEL-codes: E40 E43 E44 G20 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-mac and nep-rmg
References: View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/58342/1/MPRA_paper_58342.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:58342

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2021-12-18
Handle: RePEc:pra:mprapa:58342