The Reserve Bank of India on Thursday asked banks and financial institutions to use any widely accepted alternative reference rate (AAR) instead of Libor (London Interbank Offered Rates) in new financial contracts.

In March, the UK’s Financial Conduct Authority, UK, had announced that all Libor settings would either cease to be provided by any administrator or would no longer be representative. After December, Libor cannot be provided with the pound sterling, euro, swiss franc and Japanese yen settings. In dollar settings, the deadline was June 30, 2023.

The RBI has now asked banks and financial institutions to ‘‘cease entering into new financial contracts that reference Libor as a benchmark and instead use any widely accepted alternative reference rate by December 31, 2021’’.

The financial institutions, it suggested, should incorporate robust fallback clauses in all contracts that reference Libor.

The RBI has also advised the financial institutions to

cease using the Mumbai Interbank Forward Outright Rate (Mifor), a benchmark which references Libor latest by December 31, 2021. In August 2020, the RBI had asked banks to frame a board-approved plan, outlining an assessment of exposures linked to Libor and steps to be taken to address risks arising from the cessation of Libor, including preparation for the adoption of an alternative reference rate.

The longer deadline in the dollar settings till June 30, 2023, was meant to ensure the fulfillment of older contracts.Banks and financial institutions should incorporate robust fallback clauses, preferably well before the respective cessation dates, in all financial contracts that reference Libor, the RBI said.