TREASURY BILLS

WMA WITH
Institute of Management Sciences, University of Lucknow

P R E S E N T E D TO : VA S U D H A K U M A R M A’ A M
PRESENTED BY : BASHEER HAIDER RIZVI - (MBA F&C – III)
 What is Treasury Bill?

DEFINITION

• A treasury bill is nothing but a promissory note issued by the Government under discount for a
specified period stated therein.
• Treasury Bills are money market instruments to finance the short term requirements of the
Government of India.

The Government of India approaches to the financial market to raise funds

from the general public by selling different types of government securities.
 What is Treasury Bill?

DEFINITION
• First issued in India in 1917.
• These are discounted securities and thus are issued at a discount to face value.
• The return to the investor is the difference between the maturity value and issue price.

Treasury bills are zero coupon securities and pay no interest. Instead, they are
issued at a discount and redeemed at the face value at maturity

For example, a 91 day Treasury bill of ₹100/- (face value) may be issued at say ₹
98.20, that is, at a discount of say, ₹1.80 and would be redeemed at the face
value of ₹100/-.
 Treasury Bill Market

• Just like commercial bills which represent commercial debt, treasury bills represent short-term
borrowings of the Government. 

• Treasury bill market refers to the market where treasury bills are brought and sold.

Presently issued in three tenors, namely, 91 days, 182 days, and 364 days. The 91-day
bills are issued weekly, while the 182-day and 364-day bills are issued bi-weekly.
 Types of Treasury Bill

The distinction between different treasury bill types is made based on their tenure, as:
• 14-day treasury bill
• 91-day treasury bill
• 182-day treasury bill
• 364-day treasury bill

Available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000.

 Types of Treasury Bill

Another classification divides T-bills into ordinary and ad-hoc treasury bills. On the one hand,

ordinary treasury bills are those issued in the open market through auction to meet short term
financial requirements of the central Government.
On the other hand, Ad-hoc treasury bills are issued in order to provide investment outlets to
state governments, semi-government departments and foreign central banks for their
temporary surpluses. 

‘Ad hocs’ are always issued in favor of the RBI only. They are not sold through
tender or auction.
 Types of Treasury Bill

• 91 days treasury bills are issued at a fixed discount rate of 4% as well as through auctions.
• 364 days bills do not carry any fixed rate. The discount rate on these bills are quoted in auction
by the participants and accepted by the authorities. Such a rate is called cut off rate.

Participants
• RBI and SBI • Financial institutions
• Commercial banks Like LIC,IDBI, ICICI,
• State Governments • Corporate customers
• IFCI, NABARD, etc. • Public
 Importance of Treasury Bill

• Safety
• Liquidity
• Ideal Short-Term Investment
• Ideal Fund Management
• Non-Inflationary Monetary Tool
 Advantages of Government T-Bills

• Risk-free
Such tools act as a liability to the Indian government as they need to be repaid within the
stipulated date.
• Liquidity
Individuals looking to generate short term gains through secure investments can choose to
park their funds in such securities.
• Non-competitive bidding
Treasury bills are auctioned by the RBI every week through non-competitive bidding,
thereby allowing retail and small-scale investors to partake in such bids without having to
quote the yield rate or price.
 Disadvantages of T-Bills

• Lower returns
These zero-coupon securities, issued at a discount to investors. As G-secs fetch more
interest or returns than TBs.

• Absence Of Active Trading

Generally, the investors hold TBs till maturity and they do not come for circulation. Hence,
active trading in TBs is adversely affected.
Individuals looking to generate short term gains through secure investments can choose to
park their funds in such securities and so on….
 Ways and Means Advances - WMA
EVOLUTION OF WMA SCHEME
• Ways and means advances (WMA) is a mechanism used by Reserve Bank of India (RBI) under
its credit policy to provide to States, banking with it, to help them tide over temporary
mismatches in the cash flow of their receipts and payments.

• This is guided under Section 17(5) of RBI Act, 1934, and are '..repayable in each case not later
than three months from the date of making that advance'.

• Based on the recommendations of various committees Groups constituted.

COMMITTEES APPOINTED FOR REVIEW WMA SCHEME

• BPR Vithal Committee (1998) • Bezbaruah committee ( 2005)

• C. Ramachandran Committee (2003) • Sumit Bose Committee ( 2015)
 Ways and Means Advances - WMA

TYPES OF WMA SCHEME

• There are two types of Ways and Means Advances, viz.,

• Normal WMA : or clean advance, which was introduced in 1937 and

• Special WMA : instituted in 1953, which is secured advance provided against the collateral of
GoI securities.
 Ways and Means Advances - WMA
SPECIAL DRAWING FACILITY

• As requested by the State Governments in the SFS conference held in May 2013, the
nomenclature of Special WMA was changed to Special Drawing Facilities (SDF) since June 23,
2014 by amending the respective agreement with State Governments.

OVERDRAFT FACILITY

• An overdraft (OD) facility is also provided to the State Governments whenever RBI credit to
the State Government exceeds the SDF and WMA limits.

• Are regulated by voluntary agreements with the State Governments as also based on the
recommendations of various Committees.
 Ways and Means Advances - WMA
WMA SCHEME LIMITS

• In 1953, the WMA limits were fixed at twice the revised minimum balance.
• The WMA limits were increased to 12 times of the minimum balances in 1967 and further to
168 times in 1996.
• Since 1999, the limits are being fixed based on the recommendations of the Advisory
Committees set up periodically by RBI.

• Recently the RBI said it has revised the WMA Scheme of States and Union Territories (UTs)
based on the recommendations of the Advisory Committee on WMA to state governments.

The WMA limit arrived at by the Committee based on total expenditure of States/ UTs, works
out to Rs 47,010 crore. – (Said on 8th October 2021)
 Ways and Means Advances - WMA
INTEREST RATE ON SDF, WMA & OD

• SDF - Repo rate minus 1%

• WMA - Up to 90 days Repo rate
• WMA - Above 90 days Repo rate plus 1%
• OD - Availment equal to WMA Limit Repo rate plus 2%
• OD - Availment is more than WMA Limit Repo rate plus 5%
THANK YOU
Presented By: Basheer Haider Rizvi
MBA FC-III
INSTITUTE OF MANAGEMENT SCIENCES
UNIVERSITY OF LUCKNOW