The RBI's decision to phase out non-bank entities from call money market has led to the development of a new product called CBLO. This product developed by CCIL is a variant of the repo product providing a platform for the participants to borrow and lend. CBLO is a negotiable instrument, which is fully collaterized with no credit risk associated with it, since CCIL provides guarantee against default to the counterparties. But while the product provides a useful platform for the market participants, there are a few issues, that require to be addressed.

The current daily turnover in the call money market is around Rs. 38,000-40,000 cr. Liquidity is one of the major problems with the market players, as the call transactions create significant exposures the dangers of unsecured lending, in the light of recent bank failures.

Recently, the RBI has decided to phase out the non-bank entities from call money market. It has imposed restrictions on access to call money market by banks and primary dealers. The second round of restrictions would be effective from December 14, 2002.

Entities that are not forming part of the banking system are not allowed to participate in the Liquidity Adjustment Facility (LAF) auctions conducted by the RBI. Due to this, market participants are forced to use the repo market for deployment of their day-to-day surplus funds.

A Critic's View on CBLO, RBI, non-bank entities, money market, CBLO, CCIL, development, repo product, negotiable instrument, credit risk, counterparties, market participants, Liquidity, transactions, unsecured lending, primary dealers, banking system, Liquidity Adjustment Facility (LAF), repo market, day-to-day surplus funds.