What is the Difference Between MIBID and MIBOR?
🆚 Go to Comparative Table 🆚The Mumbai Interbank Bid Rate (MIBID) and Mumbai Interbank Offered Rate (MIBOR) are benchmark interest rates used in the Indian interbank market. They represent the cost of short-term loans between Indian banks and constitute a bid-offer spread for Indian overnight lending rates. The main differences between MIBID and MIBOR are:
- Definition: MIBID is the average interest rate that a borrowing bank is willing to pay, while MIBOR is the average rate that a lending bank is willing to accept.
- Purpose: MIBID is the rate at which banks would like to borrow from other banks, and MIBOR is the rate at which banks are willing to lend to other banks.
- Relation: The MIBID is usually lower than the MIBOR because banks try to pay less interest on funds they borrow and get more interest on the funds they loan out, profiting from the spread.
Both MIBID and MIBOR are used as benchmark rates for various financial transactions, such as interest rate swaps, forward rate agreements, term deposits, and floating rate debentures. They were launched on June 15, 1998, by the Committee for the Development of the Debt Market.
Comparative Table: MIBID vs MIBOR
The Mumbai Interbank Bid Rate (MIBID) and Mumbai Interbank Offered Rate (MIBOR) are both interest rate benchmarks in the Indian interbank money market, but they represent different aspects of short-term loans between banks. Here is a table highlighting the differences between MIBID and MIBOR:
| Feature | MIBID | MIBOR |
|---|---|---|
| Definition | MIBID is the interest rate that one participating bank would pay another to attract the deposit of funds. | MIBOR is the interest rate charged by a bank on a short-term loan to another bank. |
| Role in Loan Obtaining | MIBID is the bid rate quoted by borrowers. | MIBOR is the offer rate/asked by lenders. |
| Interest Rate Level | MIBID is usually lower than MIBOR. | MIBOR is generally higher than MIBID. |
| Relation to LIBOR | MIBOR is the Indian equivalent of the London Interbank Offer Rate (LIBOR). | MIBOR is similar to LIBOR but specific to the Indian market. |
| Uses | MIBID and MIBOR are used as benchmark rates for money market deals, interest rate swaps, forward rate agreements, term deposits, and floating-rate debentures. | MIBID and MIBOR serve as reference rates for various financial instruments, such as interest rate swaps, forward rate agreements, term deposits, and floating-rate debentures. |
In summary, MIBID represents the average interest rate that a borrowing bank is willing to pay, while MIBOR represents the average rate that a lending bank is willing to accept. The difference between MIBID and MIBOR is due to the banks' desire to pay less interest on funds they borrow and earn more interest on funds they lend, profiting from the spread.