SBI and IOCL to ink India’s First Libor Alternative Rate Deal
What is LIBOR ?
- The State Bank of India (SBI) and Indian Oil Corporation
Limited (IOCL) will be sign the first Secured Overnight Financing Rate (SOFR)
linked external commercial borrowing (ECB) deal.
- The deal will be signed
because the de facto international benchmark reference rate called the London
Interbank Offered Rate (LIBOR) will no longer work as the benchmark after
- The state Bank of India highlighted that, it will be
arranging $100 million linked to SOFR for 5 years.
- The LIBOR will no longer
work as the benchmark after December 2021.
- Thus, the Secured Overnight
Financing Rate (SOFR) and Sterling Overnight Interbank Average Rate (SONIA) are
the most potential alternatives.
- But only a few swap deals are linked to these
alternatives at the international level.
- Libor is still used extensively
specially for loans which are getting matured within the year.
- LIBOR is an interest-rate average which is calculated with
the help of the estimates which is submitted by leading banks in London.
it, each bank estimates what it would be charged to borrow from other banks.
- The rate was formerly known as British Bankers’ Association Libor (BBA LIBOR)
before the responsibility of the administration was transferred to
- It is a primary benchmark for the short-term
interest rate across the world, along with the Euribor.
- However, this interest
rate average will not be published any after December 2021 and the market
participants are being encouraged to transition towards other risk-free rates.
- These rates are calculated on five currencies and seven borrowing periods which
ranges from overnight to one year.
- The rates are published each business day by
the Thomson Reuters.