What changed
RBI reiterated its August 2020 guidance, encouraging a deadline of December 31, 2021, for ceasing new LIBOR-linked contracts. The FCA announced cessation timeline for USD LIBOR settings to June 30, 2023, but only for legacy contracts. Banks are encouraged to stop using MIFOR by December 31, 2021, with limited exceptions for risk management.
What it means for you
Banks must urgently review and transition all LIBOR and MIFOR exposures to ARR to avoid legal and reputational risks. The phased USD LIBOR cessation gives time for legacy contracts, but new business must shift immediately. Failure to comply could lead to valuation disputes and regulatory scrutiny.
What you must do
- Cease entering new LIBOR-linked contracts by December 31, 2021, except for risk management of existing exposures (as encouraged by RBI).
- Incorporate robust fallback clauses in all contracts referencing LIBOR with maturities beyond cessation dates (as urged by RBI).
- Stop using MIFOR by December 31, 2021, and adopt FBIL's modified MIFOR rates for legacy contracts (as encouraged by RBI).
- Conduct a comprehensive review of all direct and indirect LIBOR exposures and set up risk mitigation frameworks (as required by RBI).
- Sensitize clients about the transition and build infrastructure to offer products linked to Alternative Reference Rates (as required by RBI).
Who it affects
All commercial and co-operative banks, All India Financial Institutions, Non-Banking Financial Companies including Housing Finance Companies, Standalone Primary Dealers
What is the deadline for stopping new LIBOR contracts?
RBI encourages banks to cease new LIBOR-linked contracts by December 31, 2021, except for hedging or risk management of existing exposures.