The share of single currency interest rate swaps in total derivatives of the banking system has risen sharply from 15% in March 2002 to 53% in March 2006. The risks arising on account of OBS activities of banks are controlled through a combination of both banks’ internal risk management and control policies and risk mitigation mechanism imposed by the regulators.
The GOI in the Mid-Year Review, 2002 also categorically announced that “financial sector reforms, involving interest rate deregulation, increased competition from banks, and lack of concessional funds have rendered the business models of development financial institutions (DFIs) unsustainable”.