DBS Bank completes active loan switch ahead of LIBOR transition, BFSI News, ET BFSI

DBS Bank India has announced active transitioning of an existing loan and derivative to new reference rates. This is part of the bank’s benchmark transition plan to adopt new Alternative Reference Rates (ARR) as Interbank Offered Rates (IBORs) are phased out.

DBS Bank has transitioned some of the existing loan and derivative contracts with two companies – Power Finance Corporation Ltd and REC Ltd – to the new reference rates. Existing contracts were benchmarked to Swap Offer Rate (SOR), and post this transition, all loans and derivatives have now moved to Singapore Overnight Rate Average (SORA), the new risk-free rate.

As legacy interest rate benchmarks SOR and Singapore Interbank Offered Rate (SIBOR) are systematically phasing out, SORA is the recommended SGD interest rate benchmark, which is expected to replace them. Banks across countries, including India, are also moving towards ARR benchmarks equivalent to SORA.

In July 2021, RBI issued an advisory to banks and financial institutions to cease entering into new financial contracts referencing London Interbank Offered Rate (LIBOR). Since the advisory, banks have executed transactions linked to the Secured Overnight Financing Rate (SOFR) benchmark.