Banks choose CBLO market over RBI's liquidity window

LAF borrowing dips to Rs 17,215 cr on Wednesday from Rs 74,780 cr on Tuesday

Taking benefit of low interest rates, some banks on Wednesday preferred to tap the collateralised borrowing and lending obligation (CBLO) market over the Reserve Bank of India (RBI)'s liquidity window.

The borrowing at the Liquidity Adjustment Facility (LAF) of RBI dipped sharply to Rs 17,215 crore on Wednesday. Banks had borrowed Rs 74,780 crore at LAF on Tuesday. The present lending at the LAF window is 7.25 per cent (the repo rate).

The rates in the CBLO market moved between a peak of of 7.20 per cent and a low of 4.5 per cent. The turnover CBLO market was Rs 1, 01,108 crore, up from Rs 93,801 crore on Tuesday, according to Clearing Corporation of India data.

  The head of treasury at a large public sector bank said oil companies, flush with funds after getting subsidy money, were in the market. It depressed the rates in the CBLO market. Some banks have taken benefit of significant rate differential (between CBLO and LAF window). They have used money for meeting the cash reserve ratio requirement.

After the close of the quarter, there is a slight dip in the requirement of funds for banks, leading to some decline in demand at the LAF window.

A senior treasury official with an SBI-associated lender said, "The differential between LAF (at 7.25 per cent) and CBLO is attractive. But unless it is a sustained trend, we should not read too much into it."