Interest Rate Mismatches in Indian Banking: Causes, Strategies, and Implications

Authors

Baba Gnanakumar P, Kristu Jayanti College, Bengaluru, IndiaFollow
M.K. Baby, Kristu Jayanti College, Bengaluru, IndiaFollow
Ulaganathan Subramanian, UTB School of Business, BruneiFollow

Abstract

Despite the global trend of rising interest rates, India's Reserve Bank (RBI) has adopted a unique approach, emphasizing a rate pause and a solid anti-inflation stance. This unconventional strategy has sometimes led to periods of credit expansion, even during monetary tightening measures implemented by the RBI. One significant consequence of these policies is the widening gap between deposit and lending rates within the Indian banking sector. This research study aims to comprehensively analyze the implications of interest rate mismatches among Indian banks in this context. Specifically, the investigation focuses on the challenges posed by deposit and lending rate mismatches and explores potential strategies for interest rate hedging. The study concentrates on the period spanning 2022-2023, shedding light on the causes behind these mismatches and highlighting the hedging tactics employed by Indian banks. The findings of this research hold practical significance for both banking institutions and borrowers alike.

Publication Date

2024

Received Date

23-Oct-2023

Revised Date

2-Jan-2024

Accepted Date

28-Feb-2024

Recommended Citation

P, Baba Gnanakumar; Baby, M.K.; and Subramanian, Ulaganathan (2024) "Interest Rate Mismatches in Indian Banking: Causes, Strategies, and Implications," ASEAN Journal on Science and Technology for Development: Vol. 41: No. 2, Article 3.
DOI: https://doi.org/10.61931/2224-9028.1564
Available at: https://ajstd.ubd.edu.bn/journal/vol41/iss2/3