The Reserve Bank of India has approved a security lending and borrowing scheme proposed by the Clearing Corporation of India Ltd.
According to official sources, the scheme has been designed to hasten the settlement of government securities.
At present the settlement of gilts is done under the delivery versus payment system which is a relatively lengthy process.
Under DVP, the cash portion gets settled immediately but the settlement of securities takes time owing to non-availability of securities with the CCIL.
Under the scheme, institutions and banks which have surplus gilts can lend the papers to CCIL which in turn can use them for the settlement purpose and return them once a transaction is over.
Two major lenders in the inter-bank call money market -- the State Bank of India and the Life Insurance Corporation -- have decided to participate in the scheme. Under the scheme, these institutions can earn certain fee for lending securities.
Besides aiding CCIL in settlements, the scheme will also help those institutions which have been debarred from participating in the call money market.
At present only banks are allowed to participate in the call money market. At present, repo auctions of government securities and the term money market are the only avenues for non-banking players to park funds.
Besides the lending and borrowing scheme, the CCIL proposes to extend its indigenously developed money market instrument -- Collateralised Lending and Borrowing Obligation -- to corporates for facilitating better fund management.
CBLO is a variant of repo and is designed to address the short-term fund management issues of entities which have been restricted from the call money market.
At present it is only available to the members of the negotiated dealing settlement system of the RBI. The members of the NDS system include banks, primary dealers and co-operative banks.
The most important features that make CBLO stand apart are the roll-over facility for better portfolio management, and the early redemption facility which provides an exit route to the participant.
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