Export-Import Bank of India (India Exim Bank) is set to begin the new year with transactions in Alternate Reference Rates (ARR). With the cessation of LIBOR, the Bank is ready for conducting its daily operations in ARR.
In 2017, the UK Financial Conduct Authority announced that the underlying markets upon which LIBOR is derived were insufficiently active to offer a sustainable interest rate benchmark. Following which it announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative from December 31, 2021. Accordingly, regulators consistently guided financial markets to transition both new products and existing contracts to alternate benchmark rates.
As India’s premier export finance institution, India Exim Bank, which offers Indian companies a comprehensive range of products and services to enhance their international competitiveness, has a substantially dollarised balance sheet directly or indirectly linked to LIBOR. Accordingly, the Bank has taken significant steps towards migrating to alternate benchmark rates and has made significant progress in this regard.
As a preliminary step, India Exim Bank has been continuously monitoring its exposures linked to LIBOR. The Bank also set up an internal multi-disciplinary Steering Committee for LIBOR Transition, to ensure the smooth transition and systematic implementation of ARRs into the Bank’s Business. Subsequently, the Bank’s Board also approved a policy framework to address the risks arising from LIBOR transition.
Presently, the Bank is in advance stages of renegotiating and updating its underlying financial contracts and arriving at an ARR for continuation of the existing contracts and transactions. The Bank has upgraded its IT systems for addressing any issues arising out of this transition, particularly in derivative, borrowing and lending transactions, thereby also enabling the Bank to undertake fresh ARR linked transactions.
Further, to ensure the smooth transition, India Exim Bank has also adhered to the ISDA 2020 IBOR Fallbacks protocol. With this, the risk of transition to alternate benchmark for derivative contracts is expected to be minimal.
“Given the Bank’s external orientation, the Bank has substantial exposure in foreign currency including USD. Accordingly, the Bank has been proactive in identifying its exposure on account of LIBOR transition and taking steps to ensure readiness in line with global best practices. In particular, the Bank has successfully transitioned its non-USD LIBOR linked assets as well as liabilities well before the regulatory deadline of December 31, 2021 and has been proactive in reaching out to customers in offering ARR based as well as Fixed Rate products in multiple currencies” said Exim Bank’s Managing Director, Ms. Harsha Bangari.
In its endeavour to constantly spread awareness about the transition and to support its existing and new customers, India Exim Bank published general FAQs. The Bank has also started offering ARR-based products through its domestic and foreign offices. For instance, recognising the significance of ARR, the Bank in July 2021, started the ARR journey by executing a GBP loan transaction, with pricing linked to Overnight SONIA (Sterling Overnight Interbank Average Rate). With this transaction, India Exim Bank, became one of the first few banks in India to transact in SONIA-linked loans.