New Delhi: India’s banks’ watchdog, the Reserve Bank of India, ordered banking financial institutions of the country to make sure new transactions undertaken by them or their consumers should not rely on or are priced using the US$ LIBOR (London Interbank Offered Rate) from July 1, 2023, or the Mumbai Interbank Forward Outright Rate (MIFOR).
The Financial Conduct Authority (FCA), UK, had said on 5 March 2021 that all Libor ratings will either cease to be provided by any administrator or no longer will be represented.
“Banks and financial institutions are advised to ensure that no new transaction undertaken by them or their customers rely on or are priced using the US dollar Libor or the Mumbai Interbank Forward Outright Rate (Mifor),” said RBI.
The central bank also added in its statement that Financial Benchmarks India Pvt. Ltd, (FBIL) will stop the usage of Mifor from June 30 and banks and other financial institutions must take all mandatory measures to make sure the insertion of fallbacks at the earliest in all remaining legacy financial contracts that reference US dollar Libor.
On the other hand, the apex body had issued an advisory on ‘Raodmap for LIBOR transition’ in July 2021, in which several banks and other financial institutions, inter-alia, were lifted up to undertake transactions using widely accepted Alternative Reference Rate (ARR) by December 31, 2021.
Transition
Transforming entirely from LIBOR is a significant event in the global financial markets, as it requires continued attention from all stakeholders to allievate opeartional risks and ensure an orderly transition, said RBI.
What is LIBOR?
The London Interbank Offered Rate (LIBOR) is a globally accepted key benchmark interest rate which indicates borrowing costs between banks. But due to ongoing scandals and questions arising for its validity as a benchmark, it will be phased out by June 30, 2023, as per Federal Reserve and regulations in the UK.
Due to recent scandals going on in LIBOR, RBI has directed to stop the usage of MIFOR (Mumbai Interbank Forward Offer Rate), following the rate-fixing scandal.
