Short note on CBLO COLLATERALISED BORROWING & LENDING OBLIGATION (CBLO) CCIL launched a new money market instrument,

the Collateralised Borrowing and Lending Obligation (CBLO). It is a variant of liquidity adjustment facility, permitted by RBI. It is a mechanism to borrow and lend funds against securities for maturities of 1 day to 1 year. It is a tripartite repo transaction involving CCIL as 3rd party, which functions as intermediary or common counter party to borrower as well as lender. Borrower will be able to repay back even before maturity, compared to payment on due date under the existing Repo system. CBLO is expected to meet the needs of banks, FIs, PDs, MFs, NBFCs and companies for deploying their surplus funds, which have been phased out of the call money market operations. CBLO is issued at a discount to face value. Under CBLO, securities of borrower will be held in their constituent SGL account opened with CCIL and will not be transferred to lender. Detailed Collateralised Borrowing and Lending Obligation is popularly known as CBLO. RBI, in its Mid-Term Review of Monetary and Credit Policy for the year 2002-03, announced the introduction of "Collateralised Borrowing and Lending Obligation (CBLO)", as a money market instrument and subsequently issued detailed operative guidelines for the product. Thus, it is a fairly recently developed money market instrument in India (developed by CCIL and approved by RBI) for the benefit of the entities who have either been phased out from inter bank call money market or have been given restricted participation in terms of ceiling on call borrowing and lending transactions and who do not have access to the call money market. Therefore, we can say that CBLO is a discounted instrument available in electronic book entry form for the maturity period ranging from one day to ninety days (can be made available up to one year as per RBI guidelines).

Thus, CBLO is a type of derivative debt instrument, securitised by approved bonds lodged with the CCIL through Subsidiary General Account.

It is a variant of liquidity adjustment facility, permitted by RBI. It is a tripartite transaction (like repo) involving CCIL as 3rd party, which functions as intermediary or common counter party to borrower as well as lender The main features of CBLO include : There is an obligation by the borrower to return the money borrowed, at a specified future date; There is an authority to the lender to receive money lent, at a specified future date with an option/privilege to transfer the authority to another person for value received; There is an underlying charge on securities held in custody (with CCIL) for the amount borrowed/lent.

The participants in this market are banks, financial institutions, insurance companies, mutual funds, primary dealers, NBFCs, non-Government Provident Funds, Corporates etc. The participants open a Constituent SGL (CSGL) Account with CCIL for depositing securities which are offered as collateral / margin for borrowing and lending of funds. Eligible securities are Central Government securities including Treasury Bills. How / Why CBLO is Superior to Repo / Call Money vs. REPO vs. CBLO: There are broadly three channels through which banks in India primarily borrow and lend funds in the overnight market. These are the (a) inter-bank call money market, (b) the market for collateralised borrowing and lending obligations (CBLO) and (c) the repo market. Slowly, banks are now moving to more secured form of lending in the money market i.e. CBLO and repo markets, which have seen volumes rising. However, the risk proposition differs across markets. While funds in the call market are lent on an unsecured basis, both in the CBLO and repo markets, players on the borrowing end need to place securities in the form of collateral. Interest rates, in CBLO and REPO markets, are lower than those in the call market, due to lower risk levels involved. Moreover, banks normally fix internal limits for borrowers and thus they do not lend in call money beyond such internal limits. Such. These limits are fixed by banks based on number of parameters which include the past ratings issued to the borrowers and the net worth of that bank. Repo has many drawbacks, for example in case of Repos there is no flexibility. The obligations can be squared up only on the due date. Thus, even in case the liquidity position of borrower improves, he cannot `prepay'. Similarly, in case the lender's surplus liquidity position dries up, and he intends to call back the money, he cannot call back his lendings. However, in case of a CBLO holder, he can sell, or, an investor can buy it, at anytime during its tenure. Unlike Repo, where the amount of deals normally runs into several crores, CBLO is in denominations of Rs 50 lakh, and enabling part unwinding also. On the CCIL platform, the borrowers submit their `offers' and lenders their `bids', specifying the discount rate and maturity period. The bids/offers will be through an auction screen called `auction market'. These orders are matched on the basis of the best quotations, allowing, of course, for negotiations."

What is CBLO Dealing System : CBLO Dealing System is an automated order driven, on-line matching system provided by CCIL so as to enable Members to borrow and lend funds against under CBLO scheme. It also disseminates information regarding deals concluded, volumes, rate etc., and such other notifications as relevant to CBLO market