How are badla rates set?
The demand and supply of money determine badla rates. There are two types of badla: vyaj badla and undha badla. Vyaj badla (vyaj means interest in Gujarati, Hindi and Marathi) is a financing mechanism on the BSE where money is provided for financing carry-forward deals. There is no physical buying or selling involved in badla. The vyaj badla financier enters into the system to lend money for a return. This is measured as interest on the funds made available for one settlement cycle. Undha badla is the return paid by a stock borrower to the stock lender. When the seller doesn’t want to deliver shares sold, he pays the charges for carrying over his position to the next settlement period. This is known as undha badla or reverse badla. These situations crop up when there is a substantial oversold position in the market, or when there are more sellers selling who do not have the shares in hand than there are buyers who do not make payments. Generally, this occurs when the market players exp
