New Repo Instrument On Cards

The Clearing Corporation of India Ltd (CCIL) is set to introduce a new instrument in the repo market. Collateralised lending and borrowing product (CLBP) will be a tri-lateral repo transaction with CCIL acting as the third party. The company had made a presentation to the Reserve Bank of India on Monday.

Under the proposed mechanism, CCIL will act as an intermediary or the common counter-party in inter-bank repo deals. It will lend money to borrowers against securities and offer the same to participants who are willing to lend.

Once the product is launched, CCIL will offer two-way quotes. In the new system, borrowers can repay loans even before it matures, unlike in the prevailing system, wherein they can pay back only after tenure of the deal is over.

 

Radhakrishnan Nair, managing director, CorpBank Securities, said: "Once CCIL starts acting as the third party, there will be less risk involved in repo deals," adding that the new instrument will facilitate in developing the repo market.

R V Joshi, managing director of Securities Trading Corporation of India, said the facility of prepaying loans will render flexibility to borrowers.

Another primary dealer said the new facility will make its easy for small borrowers as sometimes they are charged more than the market rate. He said: "These participants, few of which are co-operative banks, can approach the CCIL and get funds at market rate." Primary dealers also said the new facility will introduce another big player in government securities in the form of CCIL and will deepen the market.