Presently there is no reference rate like the London inter-bank offered rate (LIBOR), which is followed by the British Bankers Association, so the loans and deposits are priced based on the credit risk and asset-liability gap. RBI has earlier also pulled the banks for different Prime Lending Rates (PLRs) adopted by banks and a lack of transparency regarding their formulation.

IBA has stepped up its effort to bring in such an indicative inter-bank term money rate and Mumbai inter-bank offered rate (MIBOR) is being visualized as India's answer to LIBOR. MIBOR, if adopted will eliminate the fuzziness in loan and deposit pricing and usher in more transparency in the entire system.

MIBOR can be a basis of calculating the pricing of  floating rate loans, which can be a factor above the MIBOR (X + MIBOR), based on the credit profile of the borrower. Similarly deposit rates can be a factor minus the MIBOR (X - MIBOR) depending on the funds needed by the bank.

IBA has decided to identify ten large banks, which will offer their rates on a daily basis. These individual rates will be used to work out a benchmark rate, which will be announced at a particular time everyday by the IBA. Presently the MIBOR, which was developed by the National Stock Exchange (NSE) is mainly used for call rates.