Mumbai Interbank Offer Rate (MIBOR)

MIBOR stands for Mumbai Interbank Offer Rate.
It is an interest rate benchmark that reflects the average rate at which Indian banks borrow unsecured funds from each other in the interbank market.
This rate is crucial because it influences the interest rates on various financial products such as loans, deposits, bonds, and derivatives in the Indian financial system.
In simple terms, MIBOR acts like a yardstick to measure the cost of borrowing money overnight in the Indian banking sector.

How is MIBOR Computed?

Published By: The Financial Benchmarks India Pvt. Ltd. (FBIL), which is responsible for administering financial benchmarks in India.
Computation Process:
MIBOR is calculated based on actual transactions that occur in the Negotiated Dealing System (NDS-Call) during the first hour of trading each day.
The rate is derived from the weighted average of interest rates submitted by banks engaged in these interbank transactions.
Frequency: The rate is published daily to reflect the most current market conditions.
This method ensures that MIBOR remains a reliable and accurate benchmark, grounded in actual market activity rather than hypothetical estimates.

The London Interbank Offered Rate (LIBOR) was a global benchmark interest rate at which major international banks lent to one another in the interbank market for short-term loans.

The Reserve Bank of India (RBI) issued an advisory to banks and other RBI-regulated entities to transition away from LIBOR due to:
Manipulation Scandals: LIBOR had been subject to rate-fixing scandals globally, undermining its credibility.
Diminishing Market Activity: The volume of transactions underpinning LIBOR had declined, making it less representative of actual market conditions.

The RBI introduced MIBOR as a reliable domestic benchmark, but with the global shift toward secured, transaction-based rates, India has now moved towards the Secured Overnight Rupee Rate (SORR).
SORR is based on secured overnight transactions, providing a more robust and transparent measure of the cost of borrowing.
This transition aligns India with global trends where benchmarks are derived from actual transactions rather than estimates.

Apart from MIBOR and SORR, other countries have adopted their own alternatives to LIBOR:
SOFR (Secured Overnight Financing Rate) – USA
MIFOR (Mumbai Interbank Forward Overnight Rate) – India (predecessor to SORR)
SHIBOR (Shanghai Interbank Offered Rate) – China
TIBOR (Tokyo Interbank Offered Rate) – Japan

Established: 2014, under the Companies Act, 2013.
Ownership: Jointly owned by:
FIMMDA (Fixed Income Money Market and Derivatives Association of India)
FEDA (Foreign Exchange Dealers Association of India)
IBA (Indian Banks’ Association)
Objective: FBIL's goal is to develop, administer, and maintain benchmarks related to:
The money market
Government securities
Foreign exchange markets in India
Regulation: FBIL operates under the supervision and regulation of the Reserve Bank of India (RBI), ensuring its independence and integrity.

Monetary Policy Transmission: MIBOR helps in transmitting the RBI’s monetary policy decisions (like changes in the repo rate) to the broader economy.
Pricing of Financial Products: Loans, mortgages, bonds, and derivatives often use MIBOR as a reference rate.
Market Transparency: By basing it on real transactions, MIBOR improves transparency and reduces the risk of rate manipulation.