A group of Indian institutions has requested that the central bank adopt a new benchmark for overnight indexed swaps.

The banks want the swaps to reference the recently proposed Secured Overnight Rupee Rate (SORR) rather than the current Mumbai Interbank Outright Rate (MIBOR). 

The goal of the action is to enhance price discovery in the interest-rate swap market, a crucial but opaque aspect of the financial system that aids in risk management for businesses and banks. 

According to the persons, an industry group contacted banks last month to begin the process of creating the SORR.

After discussions on the SORR are concluded and the industry group releases the market conventions, swap trading associated with the new rate may begin, they said.

There may then be two overnight derivatives benchmarks available, allowing banks to select the reference rate they want to employ. 

Citing the need to increase the credibility of interest-rate benchmarks, the RBI, which oversees interest-rate derivatives, approved a proposal to create the SORR on December 6. A request for comment via email was not answered by the central bank.

The banks contend that because MIBOR is based on uncollateralized transactions, whose volumes have drastically decreased over the last ten years, it is no longer the ideal benchmark for the swap market.

Reaching an agreement on important topics, such as legal concerns and client preferences regarding the status of open positions, would take time before a complete transition to the SORR could occur.