Commercial Paper

In case of call/ notice money the eligible participants are free to decide on interest rates of the borrowing/ lending. The reporting of call/ notice is done through NDS- CALL. The institution participating in the CALL/ NOTICE has the freedom to choose the counter party. The further negotiation can be done on the NDS system. In case of TERM Money the deal is entered in the NDS system after telephonic negotiation. As the call/ notice/ term money instrument is not backed by any securities the yields associated with them are higher than the higher secure instruments like CBOL. As the liquidity in the system is higher due to the market conditions the Call/ Notice rate have come down to around 3.00 to 4.00 compared to 7.00 before the recession.

CBLO

Collateralized Borrowing and Lending Obligation (CBLO) is a money market instrument approved by RBI, and developed by CCIL for the benefit of the entities who have either been phased out from interbank call money market or have been given restricted participation in terms of ceiling on call borrowing and lending transactions and who do not have access to the call money market. CBLO is a discounted instrument for the maturity period ranging from one day to ninety Days (can be made available up to one year as per RBI guidelines). In order to enable the market participants to borrow and lend funds, CCIL provides the Dealing System through: NDS platform

Membership to CBLO segment is extended to entities who are RBI- NDS members viz. Nationalized Banks, Private Banks, Foreign Banks, Co-operative Banks, Financial Institutions, Insurance Companies, Mutual Funds, Primary Dealers etc. Associate Membership to CBLO segment is extended to entities who are not members of RBI- NDS viz. Co-operative Banks, Mutual Funds, Insurance companies, NBFC’s, Corporate, Provident/ Pension Funds etc.

Borrowing Limit and Initial Margin

Borrowing limit for the members is fixed everyday after marking to market and applying appropriate hair-cuts on the securities deposited in the CSGL account. The post hair-cut Mark-to-Market value after adjusting for the amounts already borrowed by the members is the borrowing limit, which, in effect, denotes the drawing power up to which the members can borrow funds. Members are required to deposit initial margin generally in the form of Cash (minimum Rs.1 lac) and Government Securities. Initial margin is computed at the rate of 0.50% on the total amount borrowed/lent by the members

Eg. if a participant wants to borrow 10crores through CBLO then: For 10crores he must have securities worth 10.5 cores (0.50% is the MTM haircut) and 5% extra as an security in case the party defaults. Hence for borrowing 10crores the participating party have to keep securities in the form of approved securities and cash with CCIL worth 12.5crores out of which 2crores are kept as security with CCIL and 0.5crores is the MTM associated with the securities kept as collateral . Eligible securities are Central Government securities including Treasury Bills, as specified by CCIL from time to time.

Other features of CBLO 1. The total lending/ borrowing amount can be specified by the participant i.e. if a participant is eligible for borrowing/lending 50crores then if he wants he can specify the limits: borrow 20crores , lend 30crores 2. In case the participants breaches the limits he has to pay penalty on the amount breached 3. The participants can manually hit the transaction instead waiting for the NDS platform waiting for the match. 4. The counter party is not disclosed as its electronic screen based.

In case of CBLO the borrowing and lending is backed with the securities specified by CCIL i.e. the operations are secured by the Government securities which has low risk attached to it. Hence the yield returns are also less compared to call money or other unsecured borrowing/lending instruments. Hence major borrowings are from CBLO Commercial Paper Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. CP is a privately placed instrument with a view to enable highly rated corporate to diversify their sources of short-term borrowings and to provide an additional instrument to investors. Primary dealers, satellite dealers and India financial institutions are permitted to issue CP to enable them to meet their short-term funding requirements for their operations.