What changed
Previously, LIBOR was the prescribed benchmark for interest on export/import transactions. Now, AD banks can use any widely accepted alternative reference rate in the relevant currency. The enabling amendment to FEMA 23(R)/2015-RB was notified on September 8, 2021.
What it means for you
Banks can now transition export/import loan contracts away from LIBOR without regulatory hurdles, reducing transition risk. This flexibility helps avoid disruptions in trade finance as LIBOR benchmarks cease. All other existing instructions remain unchanged.
What you must do
- Update internal policies to permit use of alternative reference rates for export/import transactions.
- Communicate this option to customers engaged in export/import financing.
- Ensure fallback language in contracts references widely accepted alternative rates.
- Monitor currency-specific alternative rates (e.g., SOFR for USD, SONIA for GBP).
Who it affects
Category-I Authorised Dealer Banks, Exporters and importers with LIBOR-linked trade finance, Trade finance operations teams
Can we use any alternative rate, or only specific ones?
RBI permits any widely accepted alternative reference rate in the currency concerned. For USD, SOFR is common; for GBP, SONIA. The choice must be market-accepted.
Does this circular change any other export/import regulations?
No. All other instructions regarding export/import transactions remain unchanged. Only the benchmark rate flexibility is introduced.