Credit Derivatives for Hedging Credit Risk: An Indian Perspective

Abstract

The ongoing financial crisis is very possibly the greatest threat ever faced by the international financial system. It raised millions of questions on the sustainability and effective credit risk management of banks and financial institutions. Just like any other business, banking too, needs to maximize returns while minimizing the risks involved. A viable solution for banks to increase their business while keeping a proper control over their credit risk exposure is Credit Derivatives. This paper highlights the need and importance of Credit Derivatives in banking sector and opportunities of introducing it, in Indian banking sector. This paper is basically a hypothetical case study of minimizing credit risk through the use of Credit Derivatives by Indian banks, as currently no credit derivatives exist in India.