RBI relaxes norms to help banks migrate away from LIBOR

Mumbai: The central bank has relaxed norms to facilitate the financial industry’s migration to alternative reference rates instead of the London Interbank Offered Rate (LIBOR), which is due to be replaced soon. It directed banks and borrowers to work a smooth transition.

The central bank decided to amend the guidelines related to export credit in foreign currency and restructuring of derivative contracts.

“Banks will be permitted to extend export credit in foreign currency using any other widely accepted Alternative Reference Rate in the currency concerned,” RBI governor Shaktikanta Das said.

“Banks are also being advised that change in reference rate from LIBOR/ LIBOR related benchmarks to an Alternative Reference Rate (ARR) will not be treated as restructuring,” he said.

Earlier in July, the central bank alerted banks to the need for a smooth transition.

More than a week ago, a panel by the US Federal Reserve also endorsed replacement of LIBOR with SOFR in their regions.

In March, the Financial Conduct Authority (FCA), UK, said that all LIBOR settings would either cease to be provided by any administrator or no longer be representative. “Banks and financial institutions are encouraged to cease entering into new financial contracts that reference LIBOR as a benchmark,” RBI said Thursday.