Collateralized Borrowing and Lending Obligation - CBLO

What Is a Collateralized Borrowing and Lending Obligation (CBLO)?

A collateralized borrowing and lending obligation (CBLO) is a money market instrument that represents an obligation between a borrower and a lender concerning the terms and conditions of a loan. CBLOs allow those restricted from using the interbank call money market in India to participate in the short-term money markets.

How a CBLO Works

CBLOs are operated by the Clearing Corporation of India Ltd. (CCIL) and the Reserve Bank of India (RBI). CBLOs allow short-term loans to be secured by financial institutions, helping to cover their transactions. To access these funds, the institution must provide eligible securities as collateral — such as Treasury Bills that are at least six months from maturity.

The CBLO works like a bond — the lender buys the CBLO and a borrower sells the money market instrument with interest. The CBLO facilitates borrowing and lending for various maturities, from overnight to a maximum of one year, in a fully collateralized environment. The details of the CBLO include an obligation for the borrower to repay the debt at a specified future date and an authority to the lender to receive the money on that future date. The lender also has the option to transfer his authority to another person for value received.

Since the repayment of loans is guaranteed by the CCIL, all borrowings are fully collateralized. The collateral provides a safeguard against default risk by the borrower or lender’s failure to make funds available to the borrower. The required value of the collateral must be deposited and held in the custody of the CCIL. After the deposit has been received, the CCIL facilitates trades by matching borrowing and lending orders submitted by its members.

CBLOs are used by financial institutions that do not have access to India’s interbank call money market.

Special Considerations

Types of financial institutions eligible for CBLO membership include insurance firms, mutual funds, nationalized banks, private banks, pension funds, and private dealers. To borrow, members must open a Constituent SGL (CSGL) account with the CCIL, which is used to deposit the collateral.

Requirements for a CBLO

Members willing to lend must submit their bids in the CBLO auction market, which is open from 11:15 a.m. to 12:15 p.m. India Standard Time. The bid must include the amount and the rate and can be modified or canceled at any time during the open session. Borrowers, however, cannot edit their submitted CBLO offers. After the auction session closes at 12:15 p.m., the CBLO bids and offers in the system are matched, and successful borrowers and lenders are notified.

The minimum lot size for the CBLO auction market is Rs.50 lakhs and the multiple lot size is Rs.5 lakhs. Unsuccessful members in the auction stage can submit their bids or offers in the CBLO normal market, which is open on weekdays from 9:00 a.m. to 3:00 p.m. and Saturdays from 9:00 a.m. to 1:30 p.m. The minimum and multiple lot sizes for CBLO normal market are Rs.5 lakhs. The matched deals on the auction and normal markets are processed and settled on a T+0 basis. The CCIL assumes the role of the central counterparty and guarantees settlement of transactions.