SME Times is powered by   
Search News
Just in:   • Committed to nurture next-gen innovation in 6G technology: Jyotiraditya Scindia  • Europe facing earlier, stronger heatwaves: Climate scientist  • India and Namibia sign two MOUs in fields of health and entrepreneurship  • PM Modi arrives in Delhi after concluding 'productive and successful' 5-nation tour  • ASEAN to keep on consensus, inclusivity: Malaysian official 
Last updated: 23 Feb, 2021  

Rupee.9.Thmb.jpg NBFCs need to plan for an effective IBOR transition: EY India

Rupee.9.jpg
   Top Stories
» Committed to nurture next-gen innovation in 6G technology: Jyotiraditya Scindia
» Piyush Goyal holds talks with Malaysian minister on review of ASEAN trade pact
» India and OPEC have a unique and symbiotic relationship: Hardeep Puri
» SIP inflows hit all-time high in June, total AUM for equity MF at Rs 74.41 lakh crore
» India set to explore over 2.5 lakh sq kms area in one of largest offshore energy efforts
SME Times News Bureau | 23 Feb, 2021
India's NBFCs need to plan for an effective IBOR (Interbank Offered Rate ) transition, as majority of LIBOR (London Interbank Offered Rate) rates are likely to be phased out by the end of 2021, EY India report said.

In financial parlance, LIBOR refers to one of the most common series of benchmark rates referenced by contracts measured in trillions of dollars across global currencies.

"This is an opportune time for NBFCs to develop LIBOR transition plans and proactively communicate with regulators, investors, lenders, customers and other counterparties," Sandip Khetan, Partner and National Leader, Financial Accounting Advisory Services (FAAS), EY India was quoted as saying in a statement.

"This will invariably enable NBFCs to proactively engage with their corporate clients who will also be impacted by LIBOR migration on account of their sizeable overseas borrowings and derivative exposures."

According to the report, NBFCs with exposures to interest rate derivatives and foreign currency borrowings linked to London Interbank Offered Rate (LIBOR) need to be mindful of transition to Alternative Reference Rates (ARR) also known as Risk free rates (RFR).

"There is an estimated overseas foreign currency borrowings of USD 13bn and notional derivative exposure covering forward rate agreements, interest rate swaps and cross currency swaps to the tune of USD 18bn across the top 10 NBFCs," the statement said.

"It is imperative for NBFCs to understand what it means to link their Fx borrowings and derivative transactions to Secured Overnight financing rate (SOFR), Sterling Overnight Interbank Average Rate (SONIA) or other comparable RFR benchmark interest rates."

Incidentally, Mumbai Interbank Forward Offer Rate (MIFOR) widely used by banks in India for setting prices on forward rate agreement and derivatives has USD LIBOR as its core component.

"This may now be linked with SOFR, the ARR used for US dollar denominated derivatives and loans. NBFCs cannot remain detached from this transition as it is equally important for them to inventorise their LIBOR linked borrowings and derivative exposures and develop a proactive roadmap to assess impact on their financial statements, bottom line and their ability to raise overseas borrowings at a competitive rate."

"NBFCs may need to examine their legacy contracts linked to LIBOR and understand hedging and other implications on new contracts that may be linked with SOFR or any other comparable benchmark rates."

In addition, the statement said that an early impact assessment will help NBFCs understand the problem statement and respond ahead of time, if it means repapering the contracts or aligning its wider treasury and hedging objectives on foreign currency loans hedged with derivatives.
 
Print the Page
Add to Favorite
 
Share this on :
 

Please comment on this story:
 
Subject :
Message:
(Maximum 1500 characters)  Characters left 1500
Your name:
 

 
  Customs Exchange Rates
Currency Import Export
US Dollar
84.35
82.60
UK Pound
106.35
102.90
Euro
92.50
89.35
Japanese Yen 55.05 53.40
As on 12 Oct, 2024
  Daily Poll
Do you think Indian businesses will be negatively affected by Trump's America First Policy?
 Yes
 No
 Can't Say
  Commented Stories
 
 
About Us  |   Advertise with Us  
  Useful Links  |   Terms and Conditions  |   Disclaimer  |   Contact Us  
Follow Us : Facebook Twitter