The Aeronautical Development Agency (ADA) has revised the Request for Proposal (RFP) for the development phase of the Advanced Medium Combat Aircraft (AMCA), India's indigenous fifth-generation stealth fighter.
In a move to update its commercial agreements, the agency has replaced the London Interbank Offered Rate (LIBOR) with the State Bank of India's Marginal Cost of Funds-based Lending Rate (SBI MCLR).
This new benchmark will now govern interest calculations for financial adjustments, delayed payments, and recoveries under the contract.
This change represents a definitive shift from a discontinued international standard to a reliable, domestically published lending rate.
This benchmark replacement was a necessary legal and administrative step. For decades, LIBOR served as the global reference rate for hundreds of trillions of dollars in international defence agreements, loans, and financial contracts.
However, following a series of manipulation controversies that destroyed its credibility, the rate was phased out globally.
The final synthetic LIBOR rates were published on September 30, 2024, and the UK's Financial Conduct Authority officially confirmed its permanent conclusion.
In response, global markets adopted new benchmarks, such as SOFR in the United States and SONIA in the United Kingdom, while India transitioned to its own domestic lending rates like the MCLR.
Because the AMCA is a heavily localised, government-backed project—recently approved by the Cabinet Committee on Security for ₹15,000 crore to build five initial prototypes—using an Indian financial benchmark is highly practical.
Introduced by the Reserve Bank of India in April 2016, the MCLR is a transparent rate based on the marginal cost of funds, cash reserve ratios, and operating costs.
It is updated monthly with approval from the State Bank of India's board and is widely trusted across Indian banking and government sectors.
With the one-year MCLR sitting at 8.70 percent as of June 2026, domestic vendors now have a clear and easily verifiable standard for their financial dealings.
In practice, this interest benchmark applies strictly to specific contractual situations, such as recovering excess payments, settling financial disputes, enforcing liquidated damages, or calculating interest on delayed transactions.
For instance, if an audit requires a contractor to refund the ADA, the interest on that amount will now be determined by the SBI MCLR instead of the defunct LIBOR.
Importantly, this administrative update does not impact the core budget of the AMCA programme.
The costs associated with aircraft development, prototype manufacturing, engine sourcing, and flight testing remain completely unchanged.
Ultimately, this adjustment highlights the ADA's proactive approach to modernising one of India's most crucial defence initiatives.
Retaining LIBOR in a 2026 contract would have introduced significant financial and legal risks, given that the rate no longer legally exists.
By adopting the SBI MCLR, the agency ensures regulatory clarity and prevents future disputes.
Furthermore, this shift mirrors a larger transformation within Indian defence procurement, demonstrating that the country is not only focusing on building indigenous military technology but is also securing those projects with robust, localised financial and legal frameworks.
