Interest Rate Risk of Selected Indian Commercial Banks: An Application of GAP Analysis Model

The present paper addresses the problem of interest rate risk in Indian commercial banks. GAP analysis model is used to measure the interest rate risk for the period 2008-09 to 2010-11. The interest rate risk arises from timing differences in the repricing of banks’ assets and liabilities and off-balance sheet instruments. The GAP analysis helps to forecast the bank’s financial standing for different risk-taking strategies under various economic scenarios. The findings of the study reveal that rate-sensitive assets and rate-sensitive liabilities are increasing for all the selected banks. The study concludes that HDFC Bank is the best bank on the basis of positive gap of residual maturity of its assets and liabilities. State Bank of India (SBI), Punjab National Bank (PNB) and ICICI Bank have negative balance in all these time buckets. On the basis of these results, the study finds that SBI, PNB and ICICI Bank are exposed to interest rate risk. On comparing the combined performance of all public and private sector banks, private sector banks are in a better position compared to the public sector banks. Public sector banks have to be careful about the rate-sensitive assets and liabilities to avoid interest rate risk.