MIBOR: Understanding the Mumbai Inter-Bank Offered Rate

The Mumbai Inter-Bank Offered Rate (MIBOR) is the interest rate benchmark at which banks borrow unsecured funds from one another in the Indian interbank market. It is currently used as a reference rate for corporate debentures, term deposits, forward rate agreements, interest rate swaps, and floating-rate notes. The rate is only offered to first-class borrowers and lending institutions, and it is calculated daily by the National Stock Exchange of India, the Fixed Income Money Market, and the Derivative Association of India. It is determined by taking the weighted average of the lending rates of all major banks or groups of banks throughout India.

What are the Methods Used in Calculating MIBOR?

MIBOR is calculated through a combination of the two following methods:

• Polling – Rates are taken through a representative panel of 30 banks and primary dealers. The rates provided by this panel will then be summarized.
• Bootstrapping – Since there is no guarantee that the panel of participants will provide honest rates, bootstrapping has to be combined with the polling method. This method involves statistical testing of the mean reference rate for the purpose of reducing the noise and identifying the deviations in the data gathered from market participants.

The combination of these two methods also helps avoid any attempt by the participants to influence the rates in the market. However, a change in the methodology for computing the MIBOR was stipulated by the Reserve Bank of India following the introduction of FBIL overnight MIBOR in July 2015. The rate will henceforth be based on trade-weighted interbank call money transactions within market platforms. Thus, the reference rates will be based on actual trade rates, as opposed to polling rates.

Who are the Usual Market Participants in MIBOR?

MIBOR’s panel of participants consists of 30 banks and primary dealers. This panel has a mixture of public and private sector banks, as well as foreign banks. Public banks include State Bank of India and Central Bank of India; private banks include Axis Bank Limited and HDFC Bank Limited; foreign banks include Citibank and Deutsche bank; primary dealers include ICICI Securities Ltd and PNB GILTS Ltd.

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