Managing the Interest Rate Risk of Indian Banks' Government Securities Holdings
18 Pages Posted: 3 Mar 2006
Date Written: April 2005
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: Suggested Citation