The Reserve Bank
of India (RBI) plays a crucial role in regulating and supervising financial
markets in the country. In line with its commitment to maintaining transparency
and efficiency, the RBI regularly reviews and updates the list of significant
benchmarks administered by Financial Benchmarks India Pvt. Ltd. (FBIL).
Recently, in light of the cessation of the publication of the US Dollar London
Interbank Offered Rate (USD LIBOR) settings, the RBI has made important changes
to the list of benchmarks. This article explores the implications of these
changes and provides an overview of the updated list of significant benchmarks
administered by FBIL.
Cessation of MIFOR as a Significant
Benchmark:
In accordance
with the RBI circular dated January 01, 2020, and December 01, 2022, the Mumbai
Interbank Forward Outright Rate (MIFOR) and Modified Mumbai Interbank Forward
Outright Rate (MMIFOR) were designated as 'significant benchmarks' administered
by FBIL. However, with the discontinuation of USD LIBOR settings after June 30,
2023, the RBI has approved the cessation of MIFOR publication by FBIL from the
same date. Consequently, MIFOR will no longer be considered a 'significant
benchmark' beyond June 30, 2023, as per the provisions of the Financial
Benchmark Administrators (Reserve Bank) Directions, 2019.
The Updated List of Significant Benchmarks:
Effective from
July 01, 2023, the updated list of 'significant benchmarks' administered by
FBIL includes the following:
Overnight Mumbai Interbank Outright Rate
(MIBOR): MIBOR is an important overnight benchmark used for pricing and
settling various financial instruments in the Indian money market. It provides
a reference rate for overnight borrowing and lending transactions.
USD/INR Reference Rate: The USD/INR
Reference Rate is a benchmark used for determining the exchange rate between
the US Dollar (USD) and the Indian Rupee (INR). It serves as a vital reference
point for foreign exchange transactions.
Treasury Bill Rates: Treasury Bill
Rates are key benchmarks for short-term borrowing and lending in the Indian
money market. These rates help determine the cost of borrowing for the
government and serve as benchmarks for various financial instruments.
Valuation of Government Securities:
This benchmark involves the valuation of government securities to determine
their fair value. It plays a crucial role in assessing the performance and risk
associated with these securities.
Valuation of State Development Loans (SDL):
SDLs are issued by state governments in India to raise funds for development
projects. The valuation of SDLs provides insights into their fair value, aiding
investors in assessing their investment decisions.
Modified Mumbai Interbank Forward Outright
Rate (MMIFOR): MMIFOR continues to be a significant benchmark administered
by FBIL. It is a modified version of MIFOR and remains relevant for certain
forward rate calculations and hedging purposes.
Conclusion:
The RBI's
decision to cease the publication of MIFOR as a significant benchmark reflects
the evolving financial landscape and the need to adapt to changing market
conditions. The updated list of benchmarks administered by FBIL, effective from
July 01, 2023, includes various critical benchmarks such as MIBOR, USD/INR
Reference Rate, Treasury Bill Rates, Valuation of Government Securities,
Valuation of SDLs, and MMIFOR. These benchmarks serve as vital references for
market participants, enabling transparency, efficiency, and fair pricing in financial
transactions. Market participants should stay abreast of these changes to
ensure compliance and make informed decisions in line with the latest
regulatory requirements.
