Collateralized Borrowing and Lending Obligation - CBLO

 *Collateralized Borrowing and Lending Obligation - CBLO* 

 The Collateralized Borrowing and Lending Obligation (CBLO) market is a money market segment operated by the Clearing Corporation of India Ltd (CCIL). In the CBLO market, financial entities can avail short term loans by providing prescribed securities as collateral. In terms of functioning and objectives, the CBLO market is almost similar to the call money market.

The uniqueness of CBLO is that lenders and borrowers use collateral for their activities. For example, borrowers of fund have to provide collateral in the form of government securities and lenders will get it while giving loans.  There is no such need of a collateral under the call money market.

Institutions participating in CBLO are entities who have either no access or restricted access to the inter -bank call money market. Still, institutions active in the call money market can participate in the CBLO market. Nationalized Banks, Private Banks, Foreign Banks, Co-operative Banks, Insurance Companies, Mutual Funds, Primary Dealers, Bank cum Primary Dealers, NBFC, Corporate, Provident/ Pension Funds etc., are eligible for CBLO membership. These institutions have to avail a CBLO membership to do activities in the market.

Collateralized Borrowing and Lending Obligation (CBLO) is the instrument in the CBLO market. It is a discounted instrument available in electronic book entry form for the maturity period ranging from one day to one year.

The CCIL provides the Dealing System through Indian Financial Network (INFINET) and Negotiated Dealing System for participating in the market.

 In the CBLO market, members can borrow or lend funds against the collateral of eligible securities. Eligible securities are Central Government securities including Treasury Bills, and such other securities as specified by the CCIL. Borrowers in CBLO have to deposit the required amount of eligible securities with the CCIL. For trading, the CCIL matches the borrowing and lending orders (order matching) submitted by the members. Borrowers have to pay interest to the lenders in accordance with the bid.

AT1 Bonds

*AT1 Bonds* 

Additional Tier 1 bonds, also called AT1in market parlance, are a kind of perpetual bonds without any expiry date that banks are allowed to issue to meet their longterm capital requirement. That’s why these bonds are treated as quasi-equity instruments under the law. RBI is the regulator for these bonds.

• AT1 bonds are like any other bonds issued by banks and companies, which pay a fixed rate of interest at regular interval. Usually, these bonds pay a slightly higher rate of interest compared to similar, non-perpetual bonds. However, the issuing bank has no obligation to pay back the principal to investors.

• These bonds are listed and traded on the exchanges. So if an AT1 bond holder needs money, he can sell it in the market.

• Investors can not return these bonds to the issuing bank and get the money. This means there is no put option available to its holders. However, the issuing banks have the option to recall AT1 bonds issued by them (termed call option). They can go for a call option five years after these are issued and then every year at a pre-announced period. This way the issuing banks can give an exit option to AT1 bond holders.

• According to a report by rating agency ICRA, nearly Rs 94,000 crore worth of AT1 bonds are currently issued by various banks. Of this, Rs 55,000 crore is from PSU banks, while the balance Rs 39,000 crore is by private lenders.

NFO: Baroda Large and Mid Cap Fund | Baroda Mutual Fund | Bazarwiz