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ARIMA modelling of weighted average lending rates of Indian scheduled commercial banks and estimation of VaR: implications on asset-liability management

Author

Listed:
  • Upendra Nath Shukla
  • Rohit Kushwaha
  • Himanshu Mohan
  • Sanjay Medhavi

Abstract

Weighted average lending rates (WALRs) as introduced by Reserve Bank of India (RBI) to compute effective lending rates on outstanding rupee loans, play a significant role on value at risk (VaR) and asset-liability management of Indian banks. This study aims to predict WALR of scheduled commercial banks on outstanding Rupee loans in India by taking monthly data from February 2012 to November 2020 from 'rbi.org.in'. Using Box-Jenkins methodology, AR(16)MA(11) model is modified to have adjusted ARIMA (16,19,11) or AR(16) AR(19) AR(11) model, thereby optimising the model for efficient forecasting of WALR. Forecasted values are further used to estimate value at risk (VaR) on outstanding loans. Data does not exhibit any significant volatility for GARCH adjustments. The proposed model has substantial implications on asset-liability management (ALM) and risk shifting strategies of banks to hedge themselves against VaR limits at 99% confidence, leading to an efficient risk management.

Suggested Citation

  • Upendra Nath Shukla & Rohit Kushwaha & Himanshu Mohan & Sanjay Medhavi, 2025. "ARIMA modelling of weighted average lending rates of Indian scheduled commercial banks and estimation of VaR: implications on asset-liability management," International Journal of Business Innovation and Research, Inderscience Enterprises Ltd, vol. 36(1), pages 19-41.
    • Handle: RePEc:ids:ijbire:v:36:y:2025:i:1:p:19-41
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