Press release

22 Feb 2021

NBFCs in India need to plan for an effective IBOR transition: EY India

Press contact
EY India

Multidisciplinary professional services organization

  • Majority of London Interbank Offered Rate (LIBOR) are likely to be phased out by December 2021

India, 22 February 2021: NBFCs in India need to plan for an effective IBOR transition, as majority of LIBOR rates are likely to be phased out by the end of 2021. LIBOR is one of the most common series of benchmark rates referenced by contracts measured in trillions of dollars across global currencies. About USD 350 trillion worth of contracts across the globe are pegged to LIBOR which is the key interest rate benchmark for several major currencies. Some of the leading banks in India have also embarked on the journey to assess the impact of LIBOR cessation on their balance sheets and operations, according to EY India report titled ‘Impact of IBOR transition on NBFCs in India’.

The report underpins the key challenges that will need to be addressed by NBFCs, banks and other institutions with respect to contract amendments, financial reporting, tax and other risks due to cessation of LIBOR rates after 2021. 

Sandip Khetan, Partner and National Leader, Financial Accounting Advisory Services (FAAS), EY India said, “This is an opportune time for NBFCs to develop LIBOR transition plans and proactively communicate with regulators, investors, lenders, customers and other counterparties. This will invariably enable NBFCs to proactively engage with their corporate clients who will also be impacted by LIBOR migration on account of their sizeable overseas borrowings and derivative exposures.”

NBFCs with exposures to interest rate derivatives and foreign currency borrowings linked to London Interbank Offered Rate (LIBOR) need to be mindful of transition to Alternative Reference Rates (ARR) also known as Risk free rates (RFR). There is an estimated overseas foreign currency borrowings of USD 13bn and notional derivative exposure covering forward rate agreements, interest rate swaps and cross currency swaps to the tune of USD 18bn across the top 10 NBFCs[1]. It is imperative for NBFCs to understand what it means to link their Fx borrowings and derivative transactions to Secured Overnight financing rate (SOFR), Sterling Overnight Interbank Average Rate (SONIA) or other comparable RFR benchmark interest rates.

Incidentally, Mumbai Interbank Forward Offer Rate (MIFOR) widely used by banks in India for setting prices on forward rate agreement and derivatives has USD LIBOR as its core component. This may now be linked with SOFR, the ARR used for US dollar denominated derivatives and loans. NBFCs cannot remain detached from this transition as it is equally important for them to inventorize their LIBOR linked borrowings and derivative exposures and develop a proactive roadmap to assess impact on their financial statements, bottom line and their ability to raise overseas borrowings at a competitive rate.

Shiva Iyer, Associate Partner, Financial Accounting Advisory Services (FAAS), EY India said added, “LIBOR exists as a reference rate in a variety of contracts and preparing a comprehensive inventory can be challenging. Planning ahead for how and when to negotiate with borrowers and other counterparties can facilitate an orderly and timely transition for NBFCs.”

NBFCs may need to examine their legacy contracts linked to LIBOR and understand hedging and other implications on new contracts that may be linked with SOFR or any other comparable benchmark rates. An early impact assessment will help NBFCs understand the problem statement and respond ahead of time, if it means repapering the contracts or aligning its wider treasury and hedging objectives on foreign currency loans hedged with derivatives.


Notes to editors

[1]. Top 10 NBFCs: REC Limited, Power Finance Corporation Limited, HDFC Limited, Muthoot Finance Limited, PNB Housing Finance Limited, Indiabulls Housing Finance Limited, Bajaj Finance Limited, Shriram Transport Finance Company, HDB Financial Services Limited, M&M Financial Services Limited.

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit