FSDC deliberated on challenges in transition from Libor-based contracts

In a meeting, chaired by FM Sitharaman, it noted that a multi-pronged strategy involving relevant stakeholder institutions and departments is required in this regard

The Financial Stability and Development Council (FSDC) on Tuesday took up the issue of challenges involved in smooth transition from London Interbank Offer Rate (Libor)-based contracts. 

The meeting, chaired by finance minister Nirmala Sitharaman, noted that a multi-pronged strategy involving relevant stakeholder institutions and departments is required in this regard. 

Libor, the global benchmark for borrowings, is expected to cease by the end of next year. The RBI has been planning to replace it with the Mumbai Interbank Forward Outright Rate (Mifor).

India's exposure to LIBOR-linked borrowings, bonds, deposits and derivative contracts is pegged at $331 billion.

Indian Banks Association (IBA) has been working closely with market participants to facilitate transition to alternate benchmarks and create consumer awareness.

 

The council, comprising finance ministry and financial sector regulators, noted that there is a need to keep a continuous vigil by the government and all regulators on the financial conditions that could expose financial vulnerabilities in the medium and long-term. 

The meeting noted that the policy measures taken by the government and the financial sector regulatory authorities have ensured faster economic recovery in India as reflected in the reduced contraction of the gross domestic product in the second quarter of the current financial year. The GDP fell 7.5 per cent in Q2 against unprecdented 23.9 per cent decline in the first quarter of the year. 

The economy has gained momentum and the path to recovery will be faster than what was predicted earlier, it observed out. 

The meeting was attended by Sebi chairman Ajay Tyagi, Reserve Bank of India governor Shaktikanta Das, Pension Fund Regulatory and Development Authority chairman Supratim Bandyopadhyay, Insolvency and Bankruptcy Board of India chairman M S Sahoo, International Financial Services Centres Authority chairman Injeti Srinivas and finance ministry bureaucrats.