Managing the Interest Rate Risk of Indian Banks' Government Securities Holdings

18 Pages Posted: 3 Mar 2006

See all articles by Amadou Nicolas Racine Sy

Amadou Nicolas Racine Sy

International Monetary Fund (IMF) - International Capital Markets Department; Brookings Institution

Multiple version iconThere are 2 versions of this paper

Date Written: April 2005

Abstract

The large holdings of government securities by banks in India draw attention to their risk as interest rates are at historical low levels. This paper measures such a risk using duration and value-at-risk methods and assesses its current management by banks. The main finding is that some public sector and old private banks are vulnerable to a reversal of the interest rate cycle, while foreign and new private banks have built adequate defenses. In this regard, the paper makes a number of recommendations regarding government policies and individual bank practices to manage interest rate risk.

Keywords: interest rate, risk management, government securities, duration, value-at-risk, Basel Core Principles

JEL Classification: G18, G21

Suggested Citation

Sy, Amadou Nicolas Racine, Managing the Interest Rate Risk of Indian Banks' Government Securities Holdings (April 2005). IMF Working Paper No. 05/78, Available at SSRN: https://ssrn.com/abstract=888124

Amadou Nicolas Racine Sy (Contact Author)

International Monetary Fund (IMF) - International Capital Markets Department ( email )

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Brookings Institution ( email )

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