What Is the Mumbai Interbank Bid Rate (MIBID)?
The Mumbai Interbank bid rate (MIBID) is a synthetic benchmark interest rate based on rates that banks participating in the Indian interbank market are willing to pay to attract a deposit from another participant bank. The MIBID used to be calculated every day by the National Stock Exchange of India (NSEIL) as a weighted average of interest rates of a group of banks, on funds deposited by first-class depositors.
- The Mumbai Interbank Bid Rate (MIBID) 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.
Understanding the Mumbai Interbank Bid Rate
The Mumbai Interbank Bid Rate (MIBID) is a benchmark interest rate calculated based on the interest rate that participating banks pay one another another for deposits. The MIBID is an example of one iteration of an interbank rate. Each day the MIBID is calculated as a weighted average of interest rates on at least ten cleared money market transactions of 500 rupees crore that occur between 9 and 10 AM on that day.
As a deposit rate, the MIBID rate is lower than the interest rate charged to those banks wanting to borrow funds, known as Mumbai Interbank Offered Rate (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 a profit from the spread of interest earned and paid.
The MIBID is usually lower than the MIBOR because banks will try to pay less interest on funds that they borrow (from depositors) and will 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.
History of the 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 will be based on actual traded rates and will be administered by a new company, the Financial Benchmarks India Private Ltd (FBIL). The existing benchmark, based on polled rates, is set by the Fixed Income Money Market and Derivative Association of India (FIMMDA) and the NSEIL.
The Real World Example of MIBID
As an example of how MIBID is quoted in relation to other short-term interbank Indian rates, on September 22, 2015, the Reserve Bank of India published the following data:
- 14-day MIBID: 7.44%
- 14-day MIBOR: 7.56%
This data indicates that at the time, the spread on the two-week interbank rate was 0.12 percentage points.