New Delhi: India’s banking watchdog, the Reserve Bank of India, has directed the country’s banking institutions to ensure that new transactions made by them or their customers do not rely on the US$ LIBOR (London Interbank Offered Rate) from July 1. , 2023, or the Mumbai Interbank Forward Outright Rate (MIFOR).
The UK’s Financial Conduct Authority (FCA) announced on 5 March 2021 that Libor ratings will either cease to be provided by administrators or will no longer be represented.
“Banks and financial institutions are advised to ensure that new transactions carried out by them or their clients do not rely on the US dollar Libor or the Mumbai Interbank Forward Outright Rate (Mifor) or that their pricing is not used” – RBI said.
In a statement, the central bank also added that Financial Benchmarks India Pvt. Ltd, (FBIL) will stop using Mifor from June 30 and banks and other financial institutions should take all mandatory steps to ensure that the reserves are at the earliest all remaining , US dollars be included in a financial contract referring to Libor.
On the other hand, in July 2021, the apex body issued an advisory for the “Roadmap for LIBOR transition”, in which, among other things, several banks and other financial institutions were invited to conduct transactions using the widely accepted Alternative Reference Rate (ARR). ) until December 31, 2021.
A full transition from LIBOR is a significant event in global financial markets as it requires continuous attention from all stakeholders to mitigate operational risks and ensure an orderly transition, the RBI said.
What is LIBOR?
The London Interbank Offered Rate (LIBOR) is a globally accepted benchmark interest rate that indicates borrowing costs between banks. However, due to ongoing scandals and questions about its validity as a benchmark, it will be phased out by 30 June 2023 under Federal Reserve and UK regulations.
Recently, due to scandals in LIBOR, RBI has ordered to stop the use of MIFOR (Mumbai Interbank Forward Offer Rate) following the rate fixing scandal.