Categories: Banking

RBI expects banks to completely stop using LIBOR by July

The Reserve Bank of India (RBI) has instructed financial institutions and banks to adopt an Alternative Reference Rate, primarily the Secured Overnight Financing Rate (SOFR), and end their reliance on the scandal-shrouded London Interbank Offered Rate (LIBOR) and Mumbai Interbank Forward Outright Rate (MIFOR) by July 1.

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The central bank has said that most new transactions now use SOFR and the Modified Mumbai Interbank Forward Outright Rate (MMIFOR) as benchmarks.

RBI expects banks to completely stop using LIBOR by July: Key Points

The RBI expects banks and financial institutions to have in place the necessary systems and processes to enable a complete transition away from LIBOR by July 1.
LIBOR is being phased out because of its role in exacerbating the 2008 Financial Crisis and for LIBOR manipulation scandals among rate-setting banks.
However, there have been a few instances of Dollar LIBOR-linked financial contracts undertaken or facilitated by banks and FIs after January 1, and the RBI has emphasized the need for fallback clauses in all required contracts.
As of June 30, the publication of the remaining five Dollar LIBOR settings will permanently come to a halt.

Even though a few synthetic settings will still continue to be published after June 30, 2023, it’s been made clear by the UK’s Financial Conduct Authority, which oversees LIBOR, that these settings are not intended for use in any new financial contracts. Furthermore, Financial Benchmarks India Pvt Ltd will cease to publish the MIFOR, an interest rate benchmark for domestic purposes that relies on Dollar LIBOR, after the aforementioned June 30 deadline.

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Madhavi Gaur