Derivatives Accounting Practices and Risk Management in the Indian Banking Sector: An Empirical Study

The increasing complexity of financial markets has significantly enhanced the importance of derivative instruments in the Indian banking sector. As banks continue to utilize derivatives for managing interest rate, foreign exchange, and market risks, transparent accounting and comprehensive disclosure become essential for maintaining stakeholder confidence and regulatory compliance. The present study demonstrates that derivative accounting practices substantially contribute to improving the quality of financial reporting and market risk assessment. Annual reports remain the most trusted and influential source of derivative-related information, emphasizing the importance of comprehensive financial disclosures. Furthermore, the empirical findings confirm that better disclosure practices strengthen users' understanding of banks' risk management strategies and improve investment decision-making. The statistical evidence supports the view that transparent derivative accounting promotes accountability, reduces information asymmetry, and enhances the credibility of financial statements. Consequently, regulators, accounting professionals, and banking institutions should continue strengthening disclosure standards in line with evolving international accounting frameworks and regulatory expectations. Overall, the study concludes that effective derivative accounting practices not only facilitate sound risk management but also contribute to the stability and sustainability of the Indian banking sector.

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