- Collateralized Borrowing and Lending Obligation (CBLO) was launched by the Clearing Corporation of India Limited (CCIL) in 2003 to provide liquidity support to non-bank entities, who are restricted to access funds from the Call Money Market.
- CBLO is an obligation by the borrower to return the borrowed money at a specified future date.
- CBLO is a discounted instrument available in electronic book entry form for the maturity period of 1 day to 19 days.
Features of CBLO
- Cooperative banks, commercial banks, insurance companies, mutual funds, and primary dealers who are the members of the negotiated dealing system (NDS) are allowed to participate in CBLO transactions.
- NBFCs, pension funds, provident funds and trusts are also allowed to participate in CBLO segments but they have to take membership for CBLO segments.
- CBLO has two market segments – normal market and auction market.
- Normal market: It is a continuous market where members can borrow and lend on an ongoing basis. This market can be accessed for borrowing funds to the extent of their available borrowing limits.
- Auction Market: Under the auction market, members based on the borrowing limits fixed by the CCIL.
- The borrowing cost in the CBLO market is low as compared to the call money market.
- Rates on CBLO fall when there is a fall in overnight call money rates.
- When CBLO rates fall, forex dealers borrow rupees from the CBLO market to buy dollars and simultaneously agree to sell it a day later. The money is then invested in overnight dollar deposits with banks abroad which give a higher return.