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What is a Treasury bill?
 

  • Treasury Bills (T-bills) are the instruments of short term borrowing by the central government.
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  • They are promissory notes issued at discount and for a fixed period. The interest received on them is the discount which is the difference between the price at which they are issued and their redemption value (zero coupon securities).
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  • They were first issued in India in 1917.
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  • T-bill can be issued for tenor of 91,182-days or 364-days. Also T-bill can be issued for 14 days.
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  • The 14-day bills are a means of financing the needs of the government under ways and means advances (WMA). They tend to peak at the fiscal year end.
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  • T-bills are available for a minimum amount of 25,000 and in multiples of 25,000.
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Objective for issuing T-Bill
 

  • Government issues to raise funds for meeting short term expenditure needs.
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  • To provide outlet for parking temporary surplus funds by investors.
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  • T-bills are used also as a mechanism to mop up liquidity in the market.
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T-bill Auction
 

  • RBI conducts T-bills auction every Wednesday
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  • 182-day T bills are auctioned on the Wednesday of a non reporting week.
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  • RBI issues a quarterly calendar of T-bills auction.
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  • The calendar for the quarter Jul- Sep 2013 has auctions of 7000crs of 91-day T-bills and 5000crs of 182-day or 364-day T-bills every alternate week.
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  • Chart below shows the quarterly trend in outstanding T-bills.
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quarterly trend in outstanding T bills

 

  • From the chart above, we see that the government short term borrowing through T-bill has grown almost 3 times in the last seven years.
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  • T-bills account for around 11% of the internal debt and 10% of the government’s total debt.
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  • As on June 2013, total outstanding T-bills stood at 4052bn.
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  • Charts below shows the outstanding composition breakup of different tenor T-bills as on June 2013 and composition % of T-bill and dated government securities to internal debt FY13 (RE).
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composition breakup of T bills

 
Cash Management Bill (CMB)
 

  • CMBs in India are non-standard, discounted instruments issued by government to meet temporary mismatches in the cash flow of the government.
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  • First set of CMBs were issued in May 2010.
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  • CMBs have the generic character of Treasury Bills but are issued for maturities less than 91 days.
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  • CMB is the most flexible instrument for a central bank because it can be issued when needed, allowing the central bank to have lower cash balances and issue fewer long-term notes. CMBs tend to pay higher yields than bills with fixed maturities.
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  • As in the present case they may be used to drain liquidity from the banking system.
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  • The announcement of the auction of the CMB is be made by the RBI through press release issued one day prior to the date of auction.
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  • Investment in CMB is reckoned as an eligible investment in Government Securities by banks for SLR purpose.
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