MIBOR is the interest rate that a bank is willing to charge from a borrower in the Mumbai Interbank money market (which is spread all across India). Effectively MIBOR is the average interest rate charged by banks from other banks (usually for loans on very short term like one or one month etc.).
There are different short term MIBOR loan schemes extending from fixed overnight (One day) to 3-month funds. The interest rates are published every day. This rate is given to first class borrowers and lending institutions, and is based on an average of lending rates offered by major banks throughout India.
MIBOR is calculated on the basis of data collected from the panel of 30 banks and primary dealers.
Relevance of MIBOR
The significance of MIBOR as a benchmark interest rate is that it can be used as a standard by other lenders in various financial markets while fixing the interest rate on loans. For example, a bank can fix its lending rate for a corporate based on MIBOR plus an additional rate depending upon the riskiness of the borrower. This is the significance of MIBOR. But MIBOR is yet to be developed as a financial benchmark for lending.
