Financial Daily from THE HINDU group of publications
Wednesday, Jan 08, 2003
Financial Daily from THE HINDU group of publications Wednesday, Jan 08, 2003 |
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Money & Banking
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Financial Services Clearing Corpn set to launch money market platform Poornima Mohandas
MUMBAI, Jan. 7 HAVING received the Reserve Bank's approval and operative guidelines, the Clearing Corporation of India is all set to launch its new money market trading platform, Collateralised Borrowing and Lending Obligation from January 20. Clearing Corporation of India (CCIL) is presently notifying its members of access to the new, secured, money market instrument, Collateralised Borrowing and Lending Obligation (CBLO). CBLO has been designed to meet the borrowing and lending needs of banks, financial institutions, primary dealers, mutual funds, NBFCs and corporates. Through this anonymous, screen based trading platform, members can deposit g-secs with CCIL and obtain funds in exchange, for tenors varying from one day to 90 days. These borrowings also called CBLOs can be traded in the secondary market. "We will launch phase I of CBLO on January 20 and the second phase by end-March. The second phase of the product to be would enable corporates, trusts and NBFCs to trade in CBLO, through an internet based trading platform, currently in the testing stage,'' said senior officials in CCIL. Several fund-hungry primary dealers and liquidity flush-nationalised banks and mutual funds Business Line spoke to, seem enthusiastic about the new instrument. "With lending and borrowing restrictions in the call money market effective December 14, we need alternative sources of funding. CBLO looks like an attractive proposition,'' said a senior official in a primary dealer. Commenting on CBLO a fund manager in a mutual fund said, if liquidity were to develop in the screen-based trading platform it would ensure better price discovery. Soon a short-term yield curve would also develop. With regards to banks' usage of CBLO, RBI has prescribed statutory requirements of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), albeit with exemptions. The central bank has specified `a special exemption' from CRR for transactions in CBLO subject to the bank maintaining minimum 3 per cent of its net demand & time liabilities. As for SLR, the `unencumbered' securities maintained with CCIL (i.e securities deposited with CCIL against which borrowing has not been done) at the end of the day can be used to fulfil SLR requirements of the banks. To enable this, CCIL will send daily statements regarding the bank's accounts with it, to the RBI, listing the securities lodged, utilised and remaining unencumbered. Said the treasury head of a private bank, this facility is certainly a welcome move for meeting our SLR requirements. However, the need for banks to fulfil SLR requirements on their borrowings through the CBLO platform is not welcomed by all. Borrowings through CBLO becomes a liability, unlike in the case of a repo transaction, which may be a possible disadvantage for some foreign and private banks, who hold g-secs only up to the stipulated SLR limit. CCIL officials claim the product has many advantages like foreclosure, same day buy-sell, rollover and substitution of securities deposited.
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