Banks also typically maintain “open” positions as part of their trading book of their derivative portfolio and these positions engender market risks for the banks. The management of both risks is critical for banks, especially in the current environment of increased uncertainties and market volatility.
Banks also carry a significant amount of interest rate risk in their investment portfolio due to holding of the Statutory Liquidity Ratio (SLR) bonds and non-SLR securities. Managing risks in the investment portfolio, thus, acquires additional significance in an environment of increased volatility of interest rates notwithstanding the HTM dispensation available to banks up to certain limits.