FBIL-Overnight MIBOR

The FBIL-Overnight MIBOR (Mumbai Interbank Offered Rate) is a benchmark interest rate that represents the cost at which banks in the Indian interbank market lend unsecured funds to one another for one day (overnight). It is published by the Financial Benchmarks India Private Limited (FBIL) and serves as a crucial reference rate for short-term money market transactions, financial instruments, and derivatives in India.

Background and Evolution

The concept of MIBOR was first introduced by the National Stock Exchange (NSE) in June 1998 to provide a transparent and standardised benchmark for money market operations. The rate was based on the polled submissions of select banks and primary dealers indicating their lending rates for unsecured funds.
In 2014, following the Rangarajan Committee and Reserve Bank of India (RBI) recommendations on strengthening benchmark governance, the administration of Indian financial benchmarks was shifted from the NSE to an independent entity — the Financial Benchmarks India Private Limited (FBIL). FBIL, jointly promoted by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), Foreign Exchange Dealers’ Association of India (FEDAI), and the Indian Banks’ Association (IBA), took over the publication of the MIBOR series from July 22, 2015.
Since then, the FBIL-Overnight MIBOR has become the official benchmark rate for overnight interbank borrowing, ensuring consistency, transparency, and regulatory compliance in alignment with international benchmark standards such as LIBOR and EURIBOR.

Methodology and Calculation

The FBIL-Overnight MIBOR is computed based on actual transaction data rather than indicative quotes, enhancing its credibility. It reflects the weighted average rate of unsecured borrowing transactions conducted between banks in the call money market during the first hour of trading on a business day (typically between 9:00 a.m. and 10:00 a.m.).
The data used for calculation are collected from the Negotiated Dealing System – Call (NDS-Call) platform managed by the Clearing Corporation of India Limited (CCIL). Transactions that meet specific eligibility criteria, such as minimum size and participants, are included in the computation to ensure market representativeness.
The final rate is published daily by FBIL around 10:45 a.m. and rounded to two decimal places.
Key features of the methodology include:

• Transparency: Based on actual traded data, not indicative rates.
• Robustness: Computed using a volume-weighted average method.
• Timeliness: Published on each working day, excluding weekends and public holidays.
• Governance: Subject to a strict code of conduct and oversight framework in accordance with RBI guidelines.

Types of MIBOR Benchmarks

While the FBIL-Overnight MIBOR is the most actively referenced benchmark, FBIL also publishes term variants of the MIBOR rate. These include:

• FBIL 14-day MIBOR
• FBIL 1-month MIBOR
• FBIL 3-month MIBOR

These term benchmarks are derived using similar methodologies but correspond to the respective maturity periods. They are primarily used for pricing derivatives, loans, and floating-rate instruments of different tenures.

Role and Significance in Financial Markets

The FBIL-Overnight MIBOR serves as a reference rate for a wide range of financial instruments and operations in India’s money and capital markets. Its primary functions include:

• Benchmark for money market instruments: Used in pricing of call money transactions, certificates of deposit (CDs), and commercial papers (CPs).
• Reference rate for derivatives: Particularly in Overnight Indexed Swaps (OIS) and other interest rate derivatives where floating legs are linked to MIBOR.
• Pricing of loans and floating rate instruments: Some banks use MIBOR-linked rates for short-term corporate borrowings and working capital loans.
• Indicator of short-term liquidity: Movements in MIBOR reflect the prevailing demand-supply conditions of liquidity within the banking system.

The overnight MIBOR is closely watched by traders, fund managers, and the Reserve Bank of India as it provides an immediate signal of monetary policy transmission and interbank liquidity pressures.

Relationship with Other Benchmark Rates

The FBIL-Overnight MIBOR is part of a broader ecosystem of benchmark interest rates in India. Related benchmarks include:

• FBIL-Term MIBORs (14-day, 1-month, 3-month)
• FBIL-Overnight MIBID (Mumbai Interbank Bid Rate) – representing the rate at which banks are willing to borrow.
• FBIL-Treasury Bill Benchmarks – derived from yields of government securities.
• FBIL-Money Market Futures Benchmarks – used for derivative settlements.

The difference between MIBOR (offered rate) and MIBID (bid rate) indicates the spread in the interbank market and provides insight into liquidity tightness or ease.
Furthermore, with the global transition away from LIBOR, the MIBOR framework has gained increased significance as a domestically governed, transaction-based benchmark. The RBI has emphasised strengthening MIBOR’s reliability in line with the IOSCO Principles for Financial Benchmarks.

Market Behaviour and Determinants

The FBIL-Overnight MIBOR fluctuates daily depending on various factors influencing short-term liquidity and monetary policy. Key determinants include:

• Reserve Bank of India’s policy rate corridor: The repo and reverse repo rates set by the RBI form the upper and lower bounds for overnight rates.
• Liquidity Adjustment Facility (LAF) operations: RBI’s repo and reverse repo auctions influence short-term funding costs.
• Cash Reserve Ratio (CRR) requirements: Changes in CRR directly impact banks’ liquidity positions.
• Government cash balances: Large inflows or outflows due to government spending or tax collections affect system liquidity.
• Market expectations of monetary policy changes: Anticipations of rate hikes or cuts can influence interbank borrowing costs.

Typically, the overnight MIBOR hovers close to the RBI’s policy repo rate under normal liquidity conditions. However, during periods of tight liquidity, such as quarter-end or financial year-end, it may rise sharply above the repo rate.

Regulatory Framework and Oversight

The Reserve Bank of India exercises regulatory oversight over benchmark administration to ensure fairness, transparency, and integrity. FBIL operates under an independent Benchmark Administrator framework, incorporating the following features:

• Code of Conduct: Governs data collection, calculation, and publication procedures.
• Oversight Committee: Monitors compliance and reviews methodology periodically.
• Audit and Validation: Regular independent audits ensure the accuracy of benchmark computation.
• Contingency Procedures: Safeguards exist for data disruption or market closure scenarios.

In addition, FBIL aligns its benchmarks with the IOSCO (International Organisation of Securities Commissions) principles, ensuring global credibility and investor confidence.

Applications in the Indian Financial System

The FBIL-Overnight MIBOR has widespread applications across multiple financial sectors:

• Money Market: Used as a benchmark for interbank lending and borrowing transactions.
• Derivatives Market: The underlying reference rate for overnight indexed swaps, interest rate futures, and forward rate agreements.
• Corporate Finance: Corporates may issue floating-rate instruments linked to MIBOR.
• Banking Sector: Provides a benchmark for liquidity management and short-term funding strategies.

Contemporary Developments

Recent reforms in the financial benchmark landscape have reinforced the role of the FBIL-Overnight MIBOR. In light of the LIBOR discontinuation, the RBI has encouraged the adoption of FBIL-MIBOR-based fallback clauses for domestic contracts and derivatives.
Moreover, FBIL has enhanced transparency by publishing detailed methodology documents and historical data series on its website. These developments have contributed to increased confidence among investors, regulators, and international stakeholders in India’s benchmark administration framework.

Significance and Future Outlook

The FBIL-Overnight MIBOR remains a cornerstone of India’s financial infrastructure, embodying market-based pricing, operational transparency, and policy linkage. As India’s financial markets deepen and integrate globally, MIBOR’s role is expected to expand further — particularly in supporting the development of a robust risk-free reference rate (RFR) ecosystem and improving monetary policy transmission.