RBI asks banks to complete transition away from LIBOR from July 1
The Financial Conduct Authority (FCA), UK, in March 5, 2021, had announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative. Historiclly, LIBOR has been a globally accepted key benchmark interest rate that indicates borrowing costs between banks.
The Reserve Bank of India on Friday issued an advisory to banks and other RBI-regulated entities, emphasising the need to take steps to ensure a complete transition from the London Interbank Offered Rate (LIBOR) from July 1, 2023.
The Financial Conduct Authority (FCA), UK, in March 5, 2021, had announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative.
Historiclly, LIBOR has been a globally accepted key benchmark interest rate that indicates borrowing costs between banks.
"Banks/FIs are expected to have developed the systems and processes to manage the complete transition away from LIBOR from July 1, 2023," it said. Continued efforts in sensitising customers on the steps to be taken to manage the associated risks will enable a smooth completion of the final leg of the transition, it added.
The complete transition from LIBOR is a significant event in the global financial markets which requires continued attention from all stakeholders to mitigate operational risks and ensure an orderly transition.
The Reserve Bank said it has been proactively taking steps to deal with the issues around LIBOR transition. It had issued an advisory on 'Roadmap for LIBOR Transition' in July 2021 wherein banks/FIs, inter-alia, were encouraged to undertake transactions using widely accepted Alternative Reference Rate (ARR), as soon as practicable and in any case by December 31, 2021 and insert robust fallback clauses in relevant LIBOR linked financial contracts.
"Banks/financial institutions (FIs) are advised to ensure that no new transaction undertaken by them or their customers rely on or are priced using the US$ LIBOR or the Mumbai Interbank Forward Outright Rate (MIFOR)," the RBI said.
The Financial Benchmarks India (FBIL) will cease to publish MIFOR after June 30, 2023, it added.
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