Economics • Banking & FinanceEasy
What is the primary function of the 'Collateralized Borrowing and Lending Obligation (CBLO)' or its replacement tri-party repo mechanism in India?
A. Providing equity capital to new startups
B. Allowing institutions to borrow and lend short-term funds securely using government securities as collateral✓ Correct Answer
C. Facilitating international wire transfers for retail customers
D. Regulating retail consumer credit limits
💡 Solution & Explanation
Tri-party repo mechanisms and their predecessor CBLO allow financial institutions to borrow and lend short-term funds securely by utilizing government securities as collateral through an intermediary. Unlike retail wire transfers or equity investments, these wholesale money market operations ensure high liquidity management for commercial banks and mutual funds. Maintaining stability in these short-term segments is a primary objective for the Reserve Bank of India in managing domestic monetary policy.
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