What Is the Mumbai Interbank Bid Rate (MIBID)?
The term Mumbai Interbank bid rate (MIBID) refers to a synthetic benchmark interest rate used by banks in the Indian interbank market. This is the rate that a bank uses when it wants to borrow funds from another participating institution.
The rate is used to set other interest rates in the financial market. The MIBID was launched in 1988 by the National Stock Exchange of India (NSEIL) and is calculated daily along with the Mumbai Inter-Bank Offer Rate (MIBOR) as weighted averages of interest rates of a group of banks.
- The Mumbai Interbank Bid Rate is a benchmark interest rate calculated as a weighted average of rates offered for large bank deposits by other banks in India.
- MIBID is used as a reference rate to set other market interest rates, in a similar way to other well-known interbank rates.
- MIBID is paired with a corresponding interbank offer rate for short-term loans between Indian banks, MIBOR.
- The MIBID rate is lower than the interest rate charged to banks seeking funds.
- MIBID was founded as the Indian overnight call money market.
Understanding the Mumbai Interbank Bid Rate (MIBID)
The Mumbai Interbank Bid Rate is a benchmark interest rate calculated based on the interest rate that participating banks pay one another for deposits. The MIBID is calculated each day as a weighted average of interest rates on at least 10 cleared money market transactions of five billion rupees that occur between 9:00 and 10:00 a.m. on that day.
As a deposit rate, the MIBID rate is lower than the interest rate charged to those banks wanting to borrow funds. This rate is known as MIBOR. An offer rate is the rate of interest charged by a bank on a short-term loan to another bank. This is to provide the bank with a profit from the spread of interest earned and paid.
The MIBID is usually lower than the MIBOR because banks try to pay less interest on funds that they borrow from depositors. Instead, they try to get more interest on the funds that they loan out, profiting from the spread. Together, the MIBID and MIBOR constitute a bid-offer spread for Indian overnight lending rates.
MIBOR is the Indian equivalent of the London Interbank Offer Rate (LIBOR), the benchmark rate at which international banks lend to each other.
History of the Mumbai Interbank Bid Rate (MIBID)
The MIBID and MIBOR rates were launched on June 15, 1998, by the Committee for the Development of the Debt Market, as an overnight rate for the Indian banking sector. Since the launch, MIBID and MIBOR rates have been used as benchmark rates for the majority of money market deals made in India.
MIBID was initially established as the Indian overnight call money market. Due to popular demand, it was later broadened to include term money for durations of two weeks, one month, and three months. In June of 2008, in collaboration with the Fixed Income Money Market and Derivative Association of India (FIMMDA), a three-day FIMMDA-NSEIL MIBID-MIBOR combined rate was introduced in addition to the existing overnight rate.
In July 2015, the Reserve Bank of India announced that the methodology for the FIMMDA-NSE-Overnight Mumbai Interbank Bid/Offer Rate (Overnight MIBID/MIBOR) benchmark in India would be revised with the introduction of the FBIL-Overnight MIBOR on July 22, 2015.
The FBIL-Overnight MIBOR is based on actual traded rates and will be administered by a new company, Financial Benchmarks India. The existing benchmark, based on polled rates, is set by the FIMMDA and the NSEIL.
Example of Mumbai Interbank Bid Rate (MIBID)
To show how MIBID is quoted in relation to other short-term interbank Indian rates, we've outlined a table with data published by the Reserve Bank of India on Sept. 22, 2015, below.
|MIBID-MIBOR for Sept. 22, 2015|
This data indicates that at the time, the spread on the two-week interbank rate was 0.12 percentage points for the 14-day, one-month, and three-month rates.
Who Published the MIBID Rate?
The National Stock Exchange (NSE) developed and published the Mumbai Interbank Bid Rate (MIBID).
What Is the Mumbai Interbank Forward Offer Rate (MIFO)?
Published by Financial Benchmarks India Pvt Ltd, the Mumbai Interbank Forward Offer Rate (MIFO) is a benchmark rate used by Indian banks to establish forward-rate agreements and derivative prices.
What Is the Difference Between MIBID and MIBOR?
MIBID is different from the Mumbai Interbank Offered Rate, or MIBOR. Both are benchmark rates that represent the cost of short-term loans between Indian banks. MIBID represents the average interest rate that a borrowing bank is willing to pay, while MIBOR represents the average rate that a lending bank is willing to accept. Both rates are used by the central bank of India to set short-term monetary policy.
The Bottom Line
The Mumbai Interbank Bid Rate, or MIBID, is one of several benchmarks for short-term loans between Indian Banks. It is used in a similar way to LIBOR or SOFR, to represent the average cost of borrowing money in the Indian economy. Policymakers use MIBID to set short-term monetary policy.
Economy Watch. "NSE India, National Stock Exchange India."
The Economic Times. "Definition of 'Mumbai Interbank Bid Rate (mibid)'."
Indianeconomy.net. "What are Financial Benchmarks, MIBOR and MIBID?"
Reserve Bank of India. "RBI announces Revised Methodology for Overnight MIBID/MIBOR from July 22, 2015."