TITLE:
Factors Impacting the Interest Rate Derivatives Usage in Indian Commercial Banks
AUTHORS:
Dilip Kumar
KEYWORDS:
Interest Rate Risk, Banks, Interest Rate Derivatives, Risk Factors, Tobit Fixed Effect Model
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.3,
April
24,
2017
ABSTRACT: In this
paper, we examine the impact of interest rate risk factors on the interest rate
derivatives (IRD) usage by commercial banks in India. We focus our analysis
during the period 2008-2010.
We have taken this period to highlight that during and after global financial
crisis, what were the main factors that influence the interest rate derivatives
usage by Indian commercial banks. We have used simulation analysis and
regression analysis to identify the interest rate risk factors. Using Tobit
fixed effect analysis, we are able to provide empirical evidence that interest
rate risk drives the derivatives usages by Indian commercial banks. Our results
indicate that asset size, the impact
of interest rate shock on equity capital are positively related to use of derivatives for
hedging as well as trading and interest rate sensitivity factor is negatively
related to the use of derivatives for hedging and trading. New generation
private banks have relatively large exposure to derivatives for trading
purpose.