State Bank of India (SBI), on Wednesday, said it has executed two inter-bank short-term money market deals through its Hong Kong branch with the pricing linked to SOFR (Secured Overnight Financing Rate).

SOFR is an identified replacement for USD (US Dollar) LIBOR (London InterBank Offered Rate), which is expected to be phased out at the end of 2021.

The sunset for LIBOR has been triggered by the decision of the Financial Conduct Authority (FCA) in UK not to compel contributing banks for LIBOR calculation after December 2021, India’s largest bank said in a statement.

C Venkat Nageswar, Deputy Managing Director (International Banking Group), SBI, said: “The transaction demonstrates SBI’s progress in aligning its systems and processes to embrace Alternate Reference Rates (ARRs).

“LIBOR Transition is a significant financial event for international financial markets, and these transactions by country’s largest bank, will set the pace for smooth transition of financial markets in ARR

According to FCA, LIBOR is based on submissions provided by a panel of 20 banks. These submissions are intended to reflect the interest rate at which banks could borrow money on unsecured terms in wholesale markets.

“Both the FCA and the Bank of England’s Financial Policy Committee (FPC) noted in 2017 that it had become increasingly apparent that the absence of active underlying markets and the scarcity of term unsecured deposit transactions raised serious questions about the future sustainability of the LIBOR benchmarks,” the Authority said.

The Council on Foreign Affairs, on its website, observed that beginning in 2012, an international investigation into LIBOR revealed a widespread plot by multiple banks to manipulate these interest rates for profit starting as far back as 2003.

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