MUMBAI : Export-Import Bank of India (India Exim Bank) on Tuesday said is set to begin the new year with transactions in alternate reference rates (ARR).
As a preliminary step, Exim Bank said it has been continuously monitoring its exposures linked to Libor. The bank also set up an internal multi-disciplinary steering committee for Libor transition, to ensure the smooth transition and systematic implementation of ARRs into the bank’s business. Subsequently, the bank’s board also approved a policy framework to address the risks arising out of the Libor transition.
“Presently, the bank is in advance stages of renegotiating and updating its underlying financial contracts and arriving at an ARR for a continuation of the existing contracts and transactions. The bank has upgraded its IT systems for addressing any issues arising out of this transition, particularly in derivative, borrowing and lending transactions, thereby also enabling the Bank to undertake fresh ARR linked transactions," it said.
RBI had issued an advisory in June 2021 encouraging banks to cease entering new contracts using Libor as a reference rate and instead adopt any Alternative Reference Rate (ARR). The global transition from Libor became necessary after it was discovered that banks were manipulating the rate in 2007-08, sparking an investigation by Britain’s Financial Services Authority (FSA).
Libor rates over tenors are calculated as averages of rates polled by major banks and used for pricing debt instruments and derivatives such as currency swaps and interest rate swaps.
“Given the bank’s external orientation, the bank has substantial exposure in foreign currency including US dollar. Accordingly, the bank has been proactive in identifying its exposure on account of Libor transition and taking steps to ensure readiness in line with global best practices" said Harsha Bangari, managing director, Exim Bank.
