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Indian Banking in the New Millenium -
Management of Public Debt by RBI - Clearing
Corporation of India Ltd. (CCIL)

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Clearing Corporation of India Ltd. (CCIL)

Several measures were taken to continue the momentum initiated by Reserve Bank for developing the Government securities market. One of the important steps is setting up of the Clearing Corporation of India Ltd. (CCIL) with State Bank of India (SBI) as the chief promoter and five other banks and financial institutions as co-promoters. The CCIL will act as a central counter-party in the settlement of all trades in Government securities, Treasury Bills, Repos and foreign exchange. The CCIL will facilitate clearing and settlement of Government securities and foreign exchange transactions by reducing the counter-party risk through multilateral netting of transactions. CCIL will clear transactions in repos and Government securities between its members reported on the Negotiated Dealing System (NDS) of the Reserve Bank and also the rupee-U.S. dollar spot and forward deals. The Reserve Bank has already opened current account and SGL account for CCIL and given approval for its membership to Indian Financial Network (INFINET). CCIL is putting in place the hardware and software and has held many meetings with banks for finalising operational procedures/modalities, changes to systems of member banks, etc. The first phase of the project is expected to go live in November 2001, along with the expected commencement of parallel run of NDS......

(paragraph 1.21 of RBI Publication "Progress & Trends in Banking for year 2002")

Recognising the need for upgrading the country's financial infrastructure in respect of Clearing and Settlement of debt instruments and forex transactions, Reserve Bank of India initiated the move to set up The Clearing Corporation of India Ltd. (CCIL). At RBI's behest, a Core Committee for setting up CCIL was constituted. Representatives from major banks, all-India financial institutions, industry associations such as FIMMDA (Fixed Income, Money Market and Derivatives Association), PDAI (Primary Dealers Association of India), FEDAI (Foreign Exchange Dealers Association of India), AMFI (Association of Mutual Funds in India), and the RBI were co-opted on this Committee. The country's largest bank, State Bank of India, took the lead in piloting the discussions at the Core Committee level and finalising a blueprint for CCIL's formation.

The primary objective of setting up CCIL has been to establish a safe institutional structure for the clearing and settlement of trades in the Government Securities, Forex (FX), Money and Debt Markets so as to bring in efficiency in the transaction settlement process, and insulate the financial system from shocks emanating from the operations related issues.

CCIL was incorporated on the 30th of April, 2001, as the country's first clearing house for the Government Securities, Forex and other related market segments. CCIL has commenced operations with the clearing and settlement of trades in government securities from February 15, 2002, CCIL has commenced with the clearing and settlement of inter-bank spot and forward US Dollar-Indian Rupee (USD-INR) trades from November 8, 2002.

The principal promoters' of CCIL are State Bank of India (SBI), Industrial Development Bank of India (IDBI), ICICI Ltd., LIC (Life Insurance Corporation of India), Bank of Baroda, and HDFC Bank. The authorized share capital was decided at Rs 50 crore.

Landmark Dates in the Progress of CCIL & its Operations

CCIL has made considerable ground during the first year of commercial operations. Its operations in the Securities, Forex and CBLO segments stabilized without any major problems being reported on any front.

Progress made by CCIL in its first year after incorporation in operational development is as under:

  • July 2, 2001 Commencement of Software development for Securities and Forex Settlement.

  • February 15, 2002 Commencement of Securities Settlement on Non-guaranteed basis.

  • April 10, 2002 Commencement of Guaranteed Settlement in Securities Segment involving settlement of trades in Government Securities, Treasury Bills and Repos.

  • November 9,2002 Commencement of Forex Settlement operation involving trades done in USD-INR currency pair for spot and forward value.

  • January 20, 2003 Operationalisation of the new Repo variant product Collateralised Borrowing & Lending Obligation - CBLO with Guaranteed Settlement. Dealing terminals for CBLO was also provided through which market participants can borrow and lend by exchanging the CBLO's, which are issued at discount to their face value.

  • March 31, 2003 Completion of one full year of Business operations.

CCIL has ambitious plans for the current year(2003-04). In the Securities Segment, it plans to shortly introduce the DVP - III settlement functionality as and when RBI permits such mode of settlement. Upon operationalisation of Phase I B of RBI's Negotiated Dealing System, it hopes to be able to electronically transfer securities from and/or to its members towards their securities contribution to the Settlement Guarantee Fund.

The activity scope of the Forex Segment will be enhanced to cover settlement of Cash and Tom Trades. Plans are under way to consider acceptance of Forward Trades on trade date itself for guaranteed settlement. CCIL also plans to commence settlement of other cross currency trades after necessary tie-ups with a Settlement Bank for final clearing and settlement of such trades through the CLS system, as third party member with CCIL members being the fourth party.

The Forex Dealing Platform, which is ready, should be operational after receipt of necessary regulatory approval. This should provide greater comfort for our Forex Segment members through the STP possibility, when the entire gamut of dealing and settlement operations would be seamlessly offered by CCIL under one roof.

CCIL is working on releasing an internet based trading platform for its CBLO product which would considerably increase the access to corporates and other non-banking entities to the institutional lending and borrowing segment of money markets. This is expected to usher in the forces of disintermediation in the market place thus lending depth and liquidity to the market.

Benefits of Settling Trades through CCIL

  1. Assurance of settlement on the settlement date

  2. Reduction in counterparty exposure. (the exposure is extinguished upon acceptance of trades for settlement.)

  3. Operational efficiency

  4. Improved liquidity and better leveraging (e.g., shorter holding periods for government securities)

  5. Lower operational cost, overall

Collateral & Margin Management

CCIL manages its risk exposure vis--vis its members through a comprehensive risk management process. Upon admission and completion of membership documentation formalities, prior to activation of their membership, all Members are required to contribute their margin requirements as required for each business segment to which they have been admitted. Member margin contributions in respect of CCIL's various business segments are received, maintained and administered in terms of the provisions of its Bye Laws, Rules and Regulations.

Risk Management

Apart from settlement of trades, another major function of a Clearing Corporation is to reduce risks of its members from failed trades due to default by its counterparties. By becoming central counterparty to the trades done by its members, the Corporation absorbs risk. It manages the risks through its risk management process in such a manner that the ultimate risk to its members from fails is either eliminated or reduced to the minimum. Risk Management Department in CCIL has been entrusted with the responsibility of designing the process and its execution. The department is also responsible for keeping the process efficient, current and user friendly. As the department relies heavily on the feedback of the members and other interested persons for initiating measures to improve efficiency of the risk process etc. it considers receiving their comments/ suggestions as a privilege.

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