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Business News/ Industry / Banking/  IDBI Bank announces offering of products benchmarking to Alternative Reference Rates
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IDBI Bank announces offering of products benchmarking to Alternative Reference Rates

With effect from Jan 1, 2022, all the new transactions are being referenced to the ARRs

The bank has already undertaken transactions benchmarking to ARRs through its IBU GIFT City Branch and India Operations.Premium
The bank has already undertaken transactions benchmarking to ARRs through its IBU GIFT City Branch and India Operations.

IDBI Bank announced that it has started offering products benchmarking to Alternative Reference Rates (ARRs) thus replacing London Inter-Bank Offered Rate (LIBOR) in line with regulatory guidelines. With effect from January 1, 2022, all the new transactions are being referenced to the ARRs. The Alternative Reference Rates (ARRs) include Secured Overnight Financing Rate (SOFR) for USD transactions, Sterling Overnight Interbank Average (SONIA) for GBP transactions, etc.

The transition away from the London Interbank Offered Rate (LIBOR) is a global phenomenon and is one of the important events.

As per the press release, the bank has already undertaken transactions benchmarking to ARRs through its IBU GIFT City Branch and India Operations. According to the press release, to continue serving its clients unhindered in the transition from LIBOR to different Alternative Reference Rates (ARRs), the bank undertook extensive preparation to manage various modifications in its systems and processes. The statement added that during the transition phase, bank continuously engaged with its clients to keep them abreast of the market developments on transition away from LIBOR.

In case of what it means to individuals, the bank said “The LIBOR Transition would impact individuals/ retailers investors having deposits in Foreign Currency referencing to LIBOR. The new deposit rates would now be benchmarked to Alternative Reference Rates (ARRs) as against LIBOR earlier."

The RBI in a notification on July 8, 2021 mentioned that the banks / financial institutions are encouraged to cease, and also encourage their customers to cease, entering into new financial contracts that reference LIBOR as a benchmark and instead use any widely accepted ARR, as soon as practicable and in any case by December 31, 2021.

An Alternative Reference Rate (ARR), as per RBI, while ensuring that it is based on transactions in liquid markets – has to satisfy several key attributes; (a) it should provide a robust and accurate representation of interest rates in core money markets that is not susceptible to manipulation; (b) it should offer reference rates for financial contracts that extend beyond the money market; and (c) serve as a benchmark for term lending and funding.

 

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Published: 10 Jan 2022, 06:56 PM IST
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