Libor mibor

Dear Manpreet,

As per RBI/2012-13/240 A.P. (DIR Series) Circular No. 40 dated October 09, 2012, all-in-cost ceiling as specified in A.P. (DIR Series) Circular No. 99 dated March 30, 2012 will continue to be applicable until further review.

So, for the current all-in-cost ceiling for ECB, please refer A.P. (DIR Series) Circular No. 99 dated March 30, 2012.

(Manpreet, let me give an example : If the average maturity period is between 3-5 years then the interest rate should not exceed 4.10% and if the average maturity period is more than 5 years then the interest rate should not exceed 5.6%. For your explanation, the current 6 months LIBOR = 0.60%. While calculating 4.10% , I added, 0.60% with 3.5% (350bps/100). Similar is the case with arrival of 5.6%)

Basic Concepts of : LIBOR, MIBOR and Basis point :

LIBOR is an abbreviation for London Interbank Offered Rate. It is the average interest rate estimated by leading banks of London that they would be charged if they borrow from other banks. It is the primary benchmark for short term interest rates around the world.

It is an Index that measures the cost of funds (i.e. interest on loan) to large global banks operating in London financial markets or with London-based counterparties.

Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to LIBOR. Thus the Libor is widely used as a reference rate for many financial instruments in both financial markets and commercial fields.

Libor rates are calculated for ten currencies and 15 borrowing periods ranging from overnight to one year and are published daily at 11:30 am.

MIBOR stands for "Mumbai Inter-Bank Offer Rate". The MIBOR rate is used as a bench mark rate for majority of deals struck for Interest Rate Swaps, Forward Rate Agreements, Floating Rate Debentures and Term Deposits.

A basis point (often denoted as bps) is a unit equal to one hundredth of a percentage point. If basis point is 350 bps, as I explained previously to you, we should take it as 3.5% i.e 350bps/100).

Regards,

Veeral Gandhi