The Hindu Business Line : To meet credit demand growing at over 33 pc

A CBLO is a money market instrument for borrowing against securities, held in custody by the Clearing Corporation of India Ltd (CCIL) for the amount lent. The lender has a charge on the securities till such time the repayment of the dues.

Bangalore , Oct. 12

FACED with an explosive credit growth and sharp deceleration in deposits, banks are increasingly turning to money market instruments.

Bankers said that among the preferred instruments for funding the credit growth was the CBLO (collateralised borrowing lending obligation). A CBLO is a money market instrument for borrowing against securities, held in custody by the Clearing Corporation of India Ltd (CCIL) for the amount lent. The lender has a charge on the securities till such time the repayment of the dues.

Sources said that banks were using the CBLO route for raising resources in view of the low costs involved. Under RBI guidelines, funds through CBLOs could be raised for a maximum period of up to one year. Bankers said that funds were available at less than five per cent. Such funds could be raised from insurers and mutual funds, which are currently not allowed to participate in the call money markets.

Bankers said the other advantage of CBLO resources was that cash reserve ratios of five per cent need not to be maintained. One-year term deposits would cost upwards of five per cent inclusive of statutory obligations of both CRR and SLR. This further brought down the costs of resources for the banks.

The greatest advantage was that all the three categories of securities — held to maturity, held for trading and available for sale — could be used for raising resources through the CBLO route.

Moreover, bankers said that since most of them already had an investment- deposit ratio of 42 per cent, the most cost-effective option was to leverage them through CBLO to raise funds. This allowed the banks to retain the securities without booking losses through selling them, which is what most of them had resorted to till about a month ago.

Credit is growing at an annual clip of close to 33 per cent, powered by retail and corporate offtake. Deposit growth is less than 17 per cent. That banks, both public and private sector banks, were the largest borrowers in the CBLO market was evident from the figures of the CCIL.

CBLO trade volumes have shown a jump since the beginning of this fiscal year. Daily volumes in April were just about Rs 5.8 crore. At present, the daily CBLO trade volume is Rs 7,200 crore.

Almost 75 per cent of the borrowers in this market are banks. PSU banks head the data list of borrowers, accounting for about 61 per cent. Private sector banks' borrowings through CBLOs are about 14 per cent.

Among the major lenders are insurers and mutual funds (MF), which are now flush with funds.

At least 70 per cent per cent of the lending institutions are MFs and insurers. Bankers said that insurers, both life and non-life, were keen to lend in the money markets in view of the shortage of high quality, high yielding fixed income securities. Most of them, at this juncture, were not keen to enter the equity market given the current high prices.

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