“The global financial markets are witnessing a significant structural change because of Libor transition. This affects all market participants including banks in India. We are excited to be one of the first banks in India to have achieved this milestone," said Neeraj Gambhir, group executive and head (treasury, markets and wholesale banking products) at Axis Bank.
On Thursday, the Reserve Bank of India (RBI) issued an advisory to banks and other financial institutions, asking them to be prepared for the year-end transition from the London Interbank Offered Rate (Libor). The global transition from Libor became necessary after it was discovered that banks were manipulating the rate in 2007-08 that sparked an investigation by Britain’s Financial Services Authority (FSA).
Libor rates are calculated as averages of rates polled by major banks and used for pricing debt instruments and derivatives like currency swaps and interest rate swaps.
Large Indian banks are testing the waters with dollar transactions on the SOFR and preparing for the transition from Libor. State Bank of India (SBI) and ICICI Bank have executed a couple of transactions, Mint reported in January.
The central bank on Thursday urged banks and other financial institutions to incorporate robust fallback clauses, preferably well before the cessation date, in all financial contracts that reference Libor where the maturity is after the announced cessation date of the benchmark. It added that banks should also ensure that new contracts entered into before 31 December that reference Libor but mature after the cessation date include fallback clauses.
Prior to this, in August 2020, RBI had issued a ‘Dear CEO’ letter to all commercial banks sensitizing them about the need to be prepared for the Libor cessation. Then, in November, governor Shaktikanta Das said Indian Banks’ Association has been working with market participants to facilitate the transition.