Mumbai Interbank Offered Rate (MIBOR)

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Mumbai Interbank Offered Rate (MIBOR)

The Mumbai Interbank Offered Rate (MIBOR) was the reference rate at which Indian banks offered to lend funds to other banks. It served as a benchmark for money-market transactions and short-term lending in India, covering tenors from overnight up to three months.

How MIBOR worked

  • Calculated daily by the National Stock Exchange (NSE) as a weighted average of rates submitted by a panel of major banks (originally 30).
  • Represented the asking (offer) rate; its counterpart, the Mumbai Interbank Bid Rate (MIBID), represented the rate banks were willing to pay to borrow.
  • Used widely as the benchmark for call money and other money-market deals, and as a reference for pricing short-term instruments.

History and timeline

  • Launched on June 15, 1998, by the NSE Committee for the Development of the Debt Market.
  • Additional tenors introduced in late 1998 (14-day, one-month, three-month).
  • Between 1998 and 2015, MIBOR was the primary short-term benchmark for Indian money markets.
  • In 2015 the polling-based MIBOR and MIBID were discontinued and replaced by transaction-based benchmarks.
  • The Mumbai Interbank Forward Offer Rate, previously used for forward-rate agreements and some derivatives, was discontinued in 2018.

Why MIBOR was replaced

  • The original MIBOR relied on banks’ submitted estimates, which left it vulnerable to manipulation and misreporting.
  • To improve robustness and transparency, Financial Benchmarks India Pvt. Ltd. (FBIL) introduced the FBIL-Overnight MIBOR in 2015. This new benchmark is based on actual observed transactions and produces a range (with minimum and maximum rates) rather than a single polled number.

MIBOR vs. MIBID

  • MIBOR: the offer rate banks quoted when lending to other banks.
  • MIBID: the bid rate banks quoted when borrowing from other banks.
  • The difference formed a bid–ask spread; both polling-based rates were discontinued in 2015 and superseded by FBIL transaction-based measures.

MIBOR and international benchmarks

  • Like LIBOR, the original MIBOR was set from bank submissions. Concerns about submission integrity prompted global reforms.
  • LIBOR has been phased out in many jurisdictions (replaced by rates such as SOFR in the U.S.); similarly, India moved from a submission-based MIBOR to a transaction-based FBIL-Overnight MIBOR.

Significance

  • Served as a key short-term interest-rate benchmark for liquidity management, treasury operations, and pricing of money-market instruments in India.
  • Transitioning to transaction-based benchmarks improved market confidence and reduced the risk of rate manipulation.

Key takeaways

  • MIBOR was India’s interbank offer rate for overnight to three-month lending, introduced in 1998.
  • It was originally calculated from bank submissions, making it vulnerable to manipulation.
  • In 2015 the FBIL-Overnight MIBOR, based on actual transactions, replaced the polling-based MIBOR (and MIBID), enhancing transparency and reliability.