Long term fixed rate instruments to aid in hedging credit risk
By Joseph Samson
Nov 8, 2011
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In this scenario of rising interest rates, banks fear themselves against increasing exposure to credit risk. In this regard, deputy governor of Reserve Bank of India, Mr Anand Sinha has suggested that it would be in the benefit of banks to bring out more number of long term fixed rate instruments which would aid in hedging them from credit risk.

Rising interest rates of loans offered by banks especially home loans following the corresponding shoot up of policy rates by RBI, the repayment capacity of borrowers has come up as a big question.

"Any long-term loan product, if it is on a fixed interest rate basis, it is better from the interest rate risk perspective," said Mr Sinha.

In this situation of upwardly treading interest rates, a floating rate loan would be crucial for both the borrower as well as the bank. In order to ensure increased cover against non performing assets, it is adivsable for banks to increase fixed rate products in their portfolio.


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