|
|
|
NBFCs need to plan for an effective IBOR transition: EY India
|
|
|
|
Top Stories |
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
|
64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
|
|
Daily Poll |
|
|
PM Modi's recent US visit to redefine India-US bilateral relations |
|
|
|
|
|
Commented Stories |
|
|
|
|
|
|
|
|