The Hindu Business Line : Volumes swell in CBLO market

CBLO is an alternative to call money, allowing participants to borrow and lend funds against securities. Volumes were above Rs 6,000 crore on several days compared with Rs 400 crore at the beginning of the year.

Mumbai , Dec. 10

THE difference in the lending and borrowing rates of collateralised and borrowing lending obligations (CBLO) of Clearing Corporation of India (CCIL) and that at the inter-bank call money market is shrinking.

According to market participants, this indicates the increasing interest shown by banks and other players in CBLO.

CBLO is an alternative to call money, allowing participants to borrow and lend funds against securities.

The spreads between the two markets have narrowed to as low as 5-15 basis points, as against a spread of 25-30 basis points at the beginning of this fiscal.

Active participants in the CBLO market have increased two fold since the beginning of the year.

Volumes in the market have also been growing, going beyond Rs 6,000 crore on several days compared with Rs 400 crore at the beginning of the year.

Growing demand for surplus funds and uncertainty over liquidity conditions in the domestic debt market with call rates hardening to around 6.50 per cent in early November, gave market participants enough impetus to look for alternative avenues for meeting their fund requirements.

"Banks with surplus securities in their SLR portfolio, take advantage of a small differential in rates in the two avenues of fund lending, on a day-to-day basis," said a dealer at a private sector bank.

Once mutual funds and other financial institutions reach the limit of lending in call money market, they would find it lucrative to lend in CBLO, she added.

Non-bank participants are allowed to lend, on an average in a reporting fortnight, up to 45 per cent of their average daily lending in call or notice money market during 2000-01, this limit will be reduced to 30 per cent from the fortnight beginning January 8, 2005.

It is expected that after being phased out of the inter-bank market, these non-bank participant will increase activity in the CBLO market.

"Public sector banks have been showing an active interest on the borrowing side these days. The amount borrowed by the State-owned banks has increased to over 50 per cent these days, as compared to about 35 per cent a few months back," said an official at CCIL. "Co-operative banks find it more beneficial to borrow and lend in CBLO as compared to call money market," said a trader at a primary dealership firm.