Collateralized Borrowing and Lending Obligation

Before we know what is meant by collateralized borrowing and lending obligation(CBLO) let us have a quick look at CCIL- Clearing Corporation of India Ltd.

CCIL

CCIL was set up in 2001 –April to provide guaranteed clearing and settled functions for transactions in G-Sec (Government Securities), Foreign exchange and Derivative markets. The CCIL provides Dealing system through INFINET- Indian Financial Network and NDS- Negotiable Dealing System for participating in the market.The benefits are:

Market efficiency
Transparency
Liquidity and Risk Management/ Measurement
Reduced Settlement and Operational Risks
CCIL is Regulated by RBI.

CBLO- Collateralized Borrowing and Lending Obligation is an RBI-approved Money Market instrument for its eligible participants. CBLO is a discounted Instrument available in electronic form. CBLO is Conceived and Developed by CCIL. It is hosted and Developed by Clearcorp Dealing System limited (CDSL) which is a fully owned subsidiary of CCIL.

To meet liquidity, often financial Institutions opt for:-

REPO of RBI
Call Money Market
CBLO (Quick Money or Short Money Obtained from other Financial Institutions).

What does CBLO facilitate?

CBLO facilitates borrowing and Lending for various tenors, from overnight to maximum of one year in a fully collateralized environment. ( This means lending money by accepting securities ).
Eligible Securities:- Central Government Securities like Treasury bills as specified by CCIL from time to time.

Who are the participants

Any entity interested to participate in CBLO should have a prior Registration. The entities who have no access or restricted access to the inter-bank call-money market and institutions who have access can participate in this

Nationalised Banks
NBFCs
Private Banks
Foreign Banks
Financial Institutions
Insurance Companies
Co-Operative Banks
Insurance Companies
Mutual Funds
Primary Dealers
Corporate
Provident/ Pension funds etc..,

Entities who have been granted CBLO membership are classifies based on their NDS membership – CBLO members who are also NDS members are CBLO(NDS) members and other CBLO members as CBLO (Non-NDS) members or Associate members. The fund settlement of members in CBLO segment is achieved in the books if RBI for members who maintain as RBI current account and are allowed to operate that current account for settlement of their secondary market transactions. For other or associate members, CBLO funds settlement is achieved in the books of settlement bank.
The access to the CBLO Dealing systems for NDS members made available through INFINET and for NDS members through the internet.

How does it Work??

In this arrangement of CBLO members who are having excess funds can lend their funds and gain interest. Members who are in need of funds can borrow funds by depositing the prescribed securities like treasury bills(in the custody of CCIL). Thus the lending is done in a collateralized environment.
Members willing to lend their funds or money should submit their bids in the CBLO auction market which is open from 11.15 AM to 12.15 PM. The bid must include the amount and the rate of interest. Lenders can edit or cancel their bid at any time during the open session, But borrowers cannot edit their CBLO offers. After the auction time closed, CBLO bids and offers in the system are matched and notify the successful borrowers and lenders. The minimum bid size is Rs.50 Lakhs and multiple lot size of Rs.5 Lakhs.
Thus we can say that CBLO is not opened to the public.