The article examines how interest rate risk factors affect the use of interest rate derivatives by Indian commercial banks from 2008 to 2010. Through simulation and regression analysis, it was found that interest rate risk drives the usage of derivatives. Larger bank size and the impact of interest rate shocks on equity capital increase the use of derivatives for hedging and trading, while interest rate sensitivity decreases their use for these purposes. New generation private banks have a higher exposure to derivatives for trading.