The Hindu Business Line : ICICI Bank set for CBLO foray

The bank is awaiting approval from its board of directors with procedural formalities nearly over, said a treasury official of the bank. The board approval is expected this week, he said.

ICICI Bank will be the sixth private sector bank to join the market. HDFC Bank, UTI Bank, IndusInd Bank are already members. Among public sector banks, State Bank of India, Punjab National Bank and Bank of Baroda are participants in the market.

CBLO (Collateralised Borrowing and Lending Obligation ), a money market instrument approved by RBI, is a product of the Clearing Corporation of India Ltd (CCIL). It is a mechanism through which bank and non-bank entities can lend or borrow funds to each other through the Negotiated Dealing System (NDS). Financial entities such as mutual funds, primary dealers, banks and insurance companies are participants in the market.

Some of the foreign banks like Standard Chartered, Citibank, ABN-Amro and Bank of America are also considering becoming members of this market.

"CBLO offers an opportunity to banks to deploy their funds at better rates to non-bank counter parties. Banks can lend at a surplus lending rate margin of 25 basis points over the call money market through the instrument,'' the ICICI Bank official said.

The counter parties are also non-banks, which are ready to pay higher rates; as their access to other markets lending short-term funds are limited, he added.

Mutual funds are major lenders in the CBLO market as their fund inflow on a day-to-day basis can be deployed for time periods ranging from one day to one year. While, mutual funds form over 65 per cent of lending volumes, primary dealers are the major borrowers of funds. Of all durations of transactions available, the one-day CBLO forms over 80 per cent of the volume in the market. The transaction volumes in the market are in the range of Rs 2,500 crore to Rs 4,000 crore.

The instrument provides facility of discreet borrowing in addition to screen based trading.

"The market is open up to 3.30 p.m. which makes it easier to borrow funds at rates lower than those available in other markets. Placing a demand for funds a little before 2.00 pm in the call money market is likely to push up the borrowing cost, while through this instrument funds can be borrowed till late afternoon," said a bond trader at a leading private sector bank.

The screen-based trading system allows not only picking up of bids discreetly on the screen; it also reduces the back office work required, he added.

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