Indian banks are likely to move to actual dealt rates on a trading platform to determine overnight interbank lending rates, as regulators worldwide push for more transparent systems in the wake of the Libor scandal, officials close to the plan said.
Some Indian bankers fear that the current polling system used to determine the Mumbai interbank offered rate (MIBOR) could be similarly vulnerable to manipulation.
As India has online, screen-based trading of money market instruments such as call money, unlike voice-based markets in many countries, it makes sense to move to a transparent, actual traded rate system, banking officials told Reuters.
"Discussions are taking place," Ravi Rajan, executive vice president said of Clearing Corporation of India Limited (CCIL), which manages the online trading system.
"Traders are closely looking at whether it will be desirable to use traded data as a benchmark."
The moves in India parallel similar efforts by regulators from London to Singapore to reform the way benchmarks for interbank borrowing rates are fixed following the investigations into the rigging of the London interbank offered rate (Libor).
Libor and other similar benchmarks are used to price trillions of dollars worth of loans and derivative contracts.
In India, Reuters and the National Stock Exchange conduct separate polling, asking banks for their assessments MIBOR, which is used as a benchmark for interest rate swaps, overnight call money, collaterised borrowing and lending obligations (CBLO), floating rate bonds and short-term corporate loans.
The debt and money market body Fixed Income Money Market and Derivatives Association (FIMMDA) is expected to make the final decision on a new system in a month, after sounding out banks and CCIL.
Private sector bank--YES Bank
"I think it makes sense to move to a actual screen based traded price of MIBOR as it captures actual MIBOR levels while a polled rate is always suspected to be prone to manipulation," said Nirav Dalal, YES Bank's managing director and country head for fixed income and debt.
"I think rather than taking a rate at a particular point on CCIL, one should take it over a say half an hour period, which should be ideally be 9:00 am to 9:30 am and take the weighted average call rate over that half hour."
