Treasury Bills

Treasury Bills Market

A market for he purchase and sale of treasury bill is

known as a Treasury bill market.
 Treasury Bills

A T Bill is a kind of finance bill which in the nature of

promissory notes, issued by the government under
discount for a fixed period not exceeding one year
and containing a promise to pay the amount stated
therein to the bearer of the instrument.
 Treasury Bills
•Treasury bills or T-bills, which are money market instruments, are short term debt
instruments issued by the Government of India and are presently issued in three
tenors, namely, 91 day, 182 day and 364 day.

•Treasury bills are zero coupon securities and pay no interest.

•They are issued at a discount and redeemed at the face value at maturity.

•For example, a 91 day Treasury bill of Rs.100/- (face value) may be issued at say Rs.
98.20, that is, at a discount of say, Rs.1.80 and would be redeemed at the face value
of Rs.100/-. The return to the investors is the difference between the maturity value
or the face value (that is Rs.100) and the issue price
• The Reserve Bank of India conducts auctions usually every Wednesday to issue T-
bills. Payments for the T-bills purchased are made on the following Friday.
• The 91 day T-bills are auctioned on every Wednesday. The Treasury bills of 182
days and 364 days tenure are auctioned on alternate Wednesdays.
• T-bills of  of 364 days tenure are auctioned on the Wednesday preceding the
reporting Friday while 182 T-bills are auctioned on the Wednesday prior to a non-
reporting Fridays.
•The Reserve Bank releases an annual calendar of T-bill issuances for a financial year
in the last week of March of the previous financial year. The Reserve Bank of India
announces the issue details of T-bills through a press release every week.
 Treasury Bill: Features
 Issuer: T-bills are issued by the government for raising finance
from the public or institutions .

Purpose: to bridge the temporary gap between government

receipts and expenditure.

Finance bills: these do not arise from any credit sales of goods
like trade bills, i.e, there is no commercial transaction involved.

Liquidity: these are highly liquid.

Short term: issued for less than one year.

Monetary Management: RBI uses T bills for short term monetary

management to manage liquidity in the economy.
 Treasury Bill Market in India: History
T bills were first issued in India in 1917.
The purpose was to extract excess liquidity from the economy
after heavy government expenditure after world war II.
Initially T- bills had a maturity period of 3, 6, 9 and 12 months.
With establishment of RBI in 1935, T bill market underwent a
change.
T-bills were issued in two categories:
1.Tap Bills: those which were issued at all the times.
2.Intermediate Bills: those which were issued by auction to non
government investors.
From 1965, T-bills through public auction were suspended and
issue on tap basis at discount was made.
 Treasury Bill Market in India: Features
Issue: before 1935, these were issued by GOI; after 1935 by RBI
on behalf of GOI. RBI also discounts T Bills on behalf of GOI.

Types: there are two types:

1.Ordinary T bills: these are freely marketable bills that are issued
by GOI to the public, banks and other institutions for meeting its
short term financial needs.
2.Ad hoc TBs: those which are issued in favor of RBI/ only. The
purpose is
•RBI can use it as a reserve against which currency can be issued.
•It replenishes the deficit cash balances of the central government.
•It provides investment avenues to State government and semi
government departments to park their temporary surplus.
•These are not marketable and have to be sold back to RBI only.
 Treasury Bill Market in India: Features
Maturity Period: T bills with different maturities have been
issued:
i.T bills with maturity period of 3,6,9, and 12 months were
prevalent after first world war.
ii.91-dayT- bill till Nov, 1986.
iii.T bill of 182 days recommended by Chakraborty Committee;
issued up to 1992.
iv.T bill of 365 days started from April 1992.
v.T bill of 14 day and 28 day introduced in 1997.
vi.Maturity Period of 182 days reintroduced in 1999.
Participants: these include RBI,SBI, Commercial Banks, State
Govt., DFHI, STCI, financial institutions like LIC, GIC, UTI, NABARD,
IDBI, IFCI, ICICI, corporate entities and general public.
RBI is the most popular player and general public the least popular.
 Treasury Bills: Issue Mechanism
Notification: RBI mentions the dates of auction and submission
of tenders.

Tendering: after notification investors submit bids. The result of

auction is displayed. Successful bidders collect letter of acceptance
from RBI and deposit cheque payment.

SGL: (D mat account opened with RBI to hold government

securities) . it is maintained by RBI for facilitating sale and purchase
of bills.

DFHI: where SGL is not available DFHI takes active part through
CSGL (Constituent Securities General Ledger).
 Treasury Bills Advantages
Highly liquid: RBI always discounts them.
No default risk: Central Govt. is the guarantor.
Availability: they are issued on Tap basis (all the time)
Very less transaction costs.
Safe return
No capital depreciation
Eligible for SLR
Government’s tool for fund mobilisation for shorter period of
time.
RBI does monetary management through T bills.
Refinanced from RBI.
THANKS