Indian banks now in better position to manage interest rate risks

Reduction in bond duration puts lenders on stronger footing amid higher yields

For Indian banks, one of the most challenging aspects of a monetary tightening cycle is navigating the high degree of interest rate exposure that stems from a regulatory requirement to hold government securities.

But in the current cycle of interest rates heading higher, domestic banks are much better positioned than they were in the past tightening cycles, even as yields on government securities have soared to multi-year highs in a short span of time.

When interest rates are lifted, bond yields rise, resulting in a fall in their prices. With banks mandated to park a large portion of their deposits