RBI released Report of the Committee on MIBOR Benchmark

Posted 04 Oct 2024

2 min read

Recently, RBI released a report recommending key changes in methodology for computation of Mumbai Interbank Outright Rate (MIBOR) and proposed transition to a new secured money market benchmark for widely used product derivatives.

What is MIBOR?

First introduced by National Stock Exchange (NSE) in 1998, it is the interest rate benchmark at which banks borrow unsecured funds from one another in the Indian interbank market.
It is computed and published by Financial Benchmarks India Pvt. Ltd. (FBIL) on a daily basis.
Currently, it is computed based on trades executed on Negotiated Dealing System or NDS-Call system in the first hour.
Issues with current MIBOR: Based on a narrow volume (1% of daily money market volume) of call transactions, thin call money market volumes making MIBOR susceptible to volatility, etc.

Key recommendations of the Committee

Change in computation methodology of MIBOR: Include transactions based on first 3-hours instead of first hour, to make MIBOR more representative of transactions in call money market and potentially increase its reliability.
Benchmark based on secured money market: FBIL to develop and publish a benchmark based on secured money market computed from trades in the first three hours of basket repo and the TREP (tri-party repo) segments.

About Call Money Market and TREP

Call Money Market: It is a financial market where financial institutions and banks lend and borrow funds for short-term needs.
TREP: It is a type of repo contract where a third entity acts as an intermediary between two parties to the repo to facilitate services like collateral selection, payment and settlement, custody and management during life of transaction.