RBI released Report of the Committee on MIBOR Benchmark | Current Affairs | Vision IAS
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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.
  • Tags :
  • National Stock Exchange
  • MIBOR
  • FBIL
  • TREP
  • Mumbai Interbank Outright Rate
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