What Is the Mumbai Interbank Offered Rate (MIBOR)?

The Mumbai Interbank Offer Rate (MIBOR) is one iteration of India's interbank rate, which is the rate of interest charged by a bank on a short-term loan to another bank. As India's financial markets have continued to develop, India felt it needed a reference rate for its debt market, which led to the development and introduction of the MIBOR.

Banks borrow and lend money to one another on the interbank market in order to maintain appropriate, legal liquidity levels, and to meet reserve requirements placed on them by regulators. Interbank rates are made available only to the largest and most creditworthy financial institutions.

Key Takeaway

  • MIBOR is calculated based on input from a panel of 30 banks and primary dealers, and it represents India's interbank borrowing rate.

Understanding the Mumbai Interbank Offered Rate

MIBOR is calculated every day by the National Stock Exchange of India (NSEIL) as a weighted average of lending rates of a group of major banks throughout India, on funds lent to first-class borrowers. This is the interest rate at which banks can borrow funds from other banks in the Indian interbank market.

The Mumbai Interbank Offer Rate (MIBOR) is modeled closely on LIBOR. The rate is used currently for forward contracts and floating-rate debentures. Over time and with more use, MIBOR may become more significant.

The History of MIBOR

The MIBOR was launched on June 15, 1998, by the Committee for the Development of the Debt Market, as an overnight rate. The NSEIL launched the 14-day MIBOR on November 10, 1998, and the one-month and three-month MIBORs on December 1, 1998. Since the launch, MIBOR rates have been used as benchmark rates for the majority of money market deals made in India.