Bills

New benchmark rate for CDs, T-bills to be launched soon

Financial Benchmark India (FBIL), the two year-old firm created to administer interest rate benchmarks in India, is all set to launch a new standard rate for certificate of deposits (CDs) and treasury bills (T-bills) this week, which will be based on the actual trades rather than a polled benchmark, RN Kar, the newly-appointed CEO of the company said.

FBIL was formed in June 2015 to ensure that benchmark rates are managed by a third-party platform so that they are accurate and in line with an RBI panel recommendation that seeks to avoid a Libor (London interbank offer rate) fixing like fiasco in India.

FBIL already publishes the overnight and term Mumbai interbank offer rate (MIBOR), which is the rate at which banks lend to and borrow money from each other.

“The existing in terest rate benchmarks are mostly based on market polls conducted by FIIMDA or Thompson Reuters. Now, we are talking to all stakeholders, including the market, companies and banks to develop an accurate methodology for the determination of certificate of deposits and treasury bill rates. This will be followed by the forward market rates,” said Kar, a former RBI official who took VRS to join the company.

FBIL was formed by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), the Foreign Exchange Dealers’ Association of India (FEDAI) and the Indian Banks’ Association. Bond traders association FIMMDA is the majority holder in the company with 76% stake.

Dealers said the new benchmarks will be more accurate with a transparent methodology for calculation, making valuations easier.

“The methodology for the calculation of a benchmark rate has got streamlined and now has a separate oversight. It just means strengthening the process and making the benchmarks more transparent. As new benchmarks come and rates like the MCLR go away, there will be more transparency,” said Ashish Vaidya, head of trading at DBS Bank.

Vaidya was referring to the review of the current marginal cost of funds-based lending rate (MCLR) by RBI in its monetary policy review on August 2 because bank lending rates have not come down as much as they should have.

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