Money & Banking

Banks get RBI nod to use any other ARR in place of LIBOR

Our Bureau Mumbai | Updated on September 29, 2021

For interest payable in respect of export/import transactions

The Reserve Bank of India (RBI) has permitted banks, which are authorised to deal in foreign exchange, to use any other widely accepted/alternative reference rate (ARR) in place of the London interbank offered rate (LIBOR) for interest payable in respect of export/import transactions.

The central bank has issued a circular in this regard to authorised dealer banks in view of the impending cessation of LIBOR as a benchmark rate.

RBI Governor Shaktikanta Das, in a statement on August 17, observed that the transition away from LIBOR is a significant event that poses certain challenges for banks and the financial system. “The Reserve Bank has been engaging with banks and market bodies to proactively take steps. The Reserve Bank has also issued advisories to ensure a smooth transition for regulated entities and financial markets,” Das said.

Also read: LIBOR transition will be a complex exercise

Banks will be permitted to extend export credit in foreign currency using any other widely accepted ARR in the currency concerned, he added. Since the change in reference rate from LIBOR is a “force majeure” event, banks are also being advised that change in reference rate from LIBOR/ LIBOR related benchmarks to an ARR will not be treated as restructuring, the Governor then said.

On June 8, 2021, the RBI had advised banks and other regulated entities to cease entering into new contracts that use LIBOR as a reference rate and instead adopt any ARR as soon as practicable and in any event by not later than December 31, 2021.

Published on September 28, 2021

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