What Is the Mumbai Interbank Bid Rate (MIBID)?

The Mumbai Interbank bid rate (MIBID) is the interest rate that a bank participating in the Indian interbank market would be 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 Explained

The Mumbai Interbank Bid Rate (MIBID) is the interest rate that one participating bank would pay another to attract the deposit of funds. The MIBID rate would be lower than the interest rate offered to those wanting to borrow funds, known as Mumbai Interbank Offered Rate (MIBOR), one iteration of an interbank rate, which 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 after taking loans and will try to get more interest while offering loans. 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.