RBI FSR: Banks' Derivatives More Sensitive to Rate, Currency Shocks by Sept 2025

• Indian banks' derivatives portfolios showed increased sensitivity to interest rate and foreign exchange shocks by September 2025, as per RBI's FSR.
• Bottom-up stress tests revealed a higher impact of interest rate shocks on net mark-to-market (MTM) positions.
• Direction of MTM impact from rupee exchange rate shocks reversed, indicating a shift in banks' underlying currency risk positions.
• A rise in interest rates led to a 5.9% positive MTM impact, while a fall resulted in a 5.8% negative impact on total capital by Sept 2025.
• Foreign banks saw a sharp rise in derivatives income, contributing significantly to net operating income, unlike public and private sector banks.

Why It Matters: RBI FSR highlights increased risk sensitivity in banks' derivatives, especially for interest rates and currency.