London Inter Bank Offered Rate (LIBOR)

London Inter Bank Offered Rate (LIBOR)

Subject: Economy

Context: A new EY India report as majority of LIBOR rates are likely to be phased out by the end of 2021, the NBFCs in India need to plan for an effective Inter Bank Offered Rate (IBOR) transition.

Concept:

Report highlights

• LIBOR-linked borrowings and derivative exposures of NBFCs need planning for this transition.
• NBFC, banks need to ensure contract amendments, financial reporting, tax and other risk
• It also needs to proactively engage with their corporate clients who will also be
• It also needs to engage with their clients impacted by LIBOR migration on account of their sizeable overseas borrowings and derivative exposure

About LIBOR

• It is a globally benchmark rate referenced by contracts measured in trillions of dollars across global currencies.
• It is the key interest rate at which major global banks lend to one another in the international interbank market for short-term loans.
• LIBOR is administered by the Intercontinental Exchange, which asks major global banks how much they would charge other banks for short-term loans.
• The rate is calculated using the Waterfall Methodology, a standardized, transaction-based, data-driven, layered method.