State Bank of India (SBI) on Thursday said all its systems and processes are aligned to support transactions linked to Alternate Reference Rates (ARR) as part of the global LIBOR transition process.

India’s largest bank, in a statement, said it has already started offering ARR-based products to the customers through its domestic and foreign branches.

January 01, 2022, is crucial for the LIBOR (London InterBank Offered Rate) transition process since all the new transactions will be referenced to new benchmark (ARR) rates from this date as per the recommendations of the Reserve Bank of India (RBI) and other banking regulators across the world.

Ashwini Kumar Tewari, Managing Director (International Banking, Technology & Subsidiaries), SBI said, LIBOR Transition is a significant financial event for international financial markets and the Bank has proactively modified its systems and processes to embrace the change from LIBOR to ARR.

SBI stated that it is one of the first banks to have signed the ISDA (International Swaps and Derivatives Association) 2020 IBOR (interbank offered rate) Fallbacks protocol on December 11, 2020 and has demonstrated its readiness to embrace ARR by executing several SOFR (Secured Overnight Financing Rate)-linked transactions/deals during the year 2021.

FSB recommendations

In 2014, in response to cases of attempted manipulation and also declining liquidity in key interbank unsecured funding markets, the Financial Stability Board (FSB) made recommendations to reform interbank offered rates (IBORs), working in coordination with national authorities to set out a globally consistent roadmap that encourages firms to stop the use of LIBOR and identify alternative benchmarks, the RBI said in its Report on Trend and Progress of Banking in India 2020-21.

In October 2020, the FSB published a global transition roadmap, which sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth transition out of LIBOR by end-2021.

In March 2020, the UK Financial Conduct Authority (FCA) and Intercontinental Exchange (ICE) Benchmark Administration (IBA) had announced that the one-week and two-month US dollar (USD) LIBOR settings will cease to be published immediately after December 31, 2021

The publication of overnight and one-, three-, six-, and 12-month USD LIBOR settings will, however, be extended till June 30, 2023 providing additional time to wind down or renegotiate existing contracts, the Report said.

The Office of the Comptroller of the Currency (OCC), the US Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), in a joint statement, have encouraged supervised institutions to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable, but no later than December 31, 2021.

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