Collateralized Borrowing and Lending Obligation CBLO Collateralized Borrowing and Lending Obligation

Indian Money Market Call/ Notice/ Term Money Repo Commercial Paper Certificate of Deposit Treasury Bills CBLO

Why Money Markets? Money Market (under 1 year) Fixed Income Market (over 1 year) For borrowing long term For investing long term For meeting reserve requirements (eg: SLR) For trading interest rates along the yield curve Money Market (under 1 year) For borrowing/ lending short term funds Bridging liquidity mismatches(mostly intra-day) For meeting reserve requirements (CRR & SLR)

Indian Money Market T-Bill, CP, CD Call Money, Repo, CBLO Used by Govt., Corporates, Banks, FIs for short term borrowing Call Money, Repo, CBLO Used by Banks, MFs, FIs, Corporates to manage short term liquidity mismatches Predominantly over night money market Over 90% of activity in Call, Repo & CBLO in overnight segment

Overnight Money Market Call/ Notice/ Term Money Uncollateralized market Participants: Banks & Primary Dealers only Repo Collateralized market Participants: Banks, Primary Dealers, FIs, MFs, Corporates, insurance companies, NBFCs CBLO

Call/ Notice/ Term Money Market Uncollateralized market Typically overnight market Historically, most depended market for short term funds Earlier consisted of both banks and non-bank entities (eg: MFs, Corporates etc.) Historically, very volatile market Most expensive due to uncollateralized nature Highest counterparty risk in money market Gradual phasing out of non-bank entities Now, participants: Banks & Primary Dealers only

Repo 100% collateralized dealing Typically overnight market More stable market less expensive than Call money Collateral fussiness Problems in collateral management No early close out of position No substitution of collateral

What is CBLO ? CBLO was conceived and developed by CCIL for facilitating deployment in a collateralized environment. It is a tripartite Repo transaction involving CCIL as third party and as central counterparty to borrower and lender CBLO is an RBI approved money market instrument which can be issued for a maximum tenor of one year. • Is an instrument backed by Gilts as Collaterals • Creates an Obligation on the borrower to repay the money borrowed along with interest on a predetermined future date; • A Right and Authority to the lender to receive money lent along with interest on a predetermined future date or has the privilege to transfer the authority to anther person • Creates a charge on the Collaterals deposited by the Borrower with CCIL for the purpose.

Why CBLO? to address the concerns of entities phased out of call money market or are subjected to borrowing/ lending restrictions MFs, NBFCs, FIs, Corporates, Insurance Comp, Coop-Banks to address the tenor ‘lock-in’ issues related to Repo Buying/Selling CBLOs to bring in better transparency real time dissemination of quotes and dealt rates and market depth to bring in better level playing field access to wider member base, anonymity, guaranteed settlement to have better price discovery in money market pricing a function of demand & supply

How does CBLO operate? A member deposits a set of eligible securities as collateral with CCIL Borrowing limit: based on mark-to-market value and hair-cut applicable on securities deposited Based on borrowing limit, CBLOs are issued to a member. CBLO is an instrument that can be bought and sold. Borrowing/ Lending is done by selling/ buying CBLOs A borrower sells CBLOs to raise funds; a lender buys CBLOs to deploy funds

How does CBLO operate? Trading in CBLOs is facilitated on a dealing system called CBLO CBLO dealing system is: an electronic dealing system for collateralized borrowing/ lending in an anonymous environment On any day, CBLO instrument for the next seven business days and three month end dates are made available\ Dealing allwed for settlement types: T+0 and T+1 CBLO is a discounted instrument traded on Yield:Time priority

Settlement Matched deals are novated and CCIL assumes the role of central counterparty Settlement of deals guaranteed by CCIL Obligation of members determined through multilateral netting of trades First, net CBLO deliverable are debited from members account, securities underlying as collateral are blocked Second, net funds deliverable by members is received After funds received, CBLO credited to lender’s account and funds credited to borrower’s account Shortage handing – LOC, creation of CBLO, blocking of funds receivable, blocking of CBLO receivable

Lenders in CBLO

Borrowers in CBLO

CBLO Daily Avg. Traded Value (Cr.)

Money Market Share

Money Market Rates