Understand Treasury Bills (T-Bills) in India, their purpose in government borrowing and role in RBI's liquidity management strategies

Treasury Bills

• Definition and Nature

  • Treasury Bills (T-bills) are short-term borrowing instruments issued by the Central Government of India through the Reserve Bank of India (RBI).

  • They are among the safest money market instruments with zero credit risk, though they offer relatively low returns.

  • Treasury bills are available in both the primary and secondary markets, and represent a promise to pay a specified sum after a fixed period.

  • They mature in less than one year and are considered highly liquid.

• Development and Policy Reforms

  • Following the recommendations of the Committee to Review the Monetary System, a scheme for 182-day Treasury Bills was introduced with flexible interest rates and no rediscounting facility with the RBI. The first auction was held in November 1986.

  • This instrument aimed to offer an alternative avenue for short-term investment and develop a secondary market.

• Changes in Interest Rates

  • Due to rising cut-off yields in auctions of 182-day T-bills, the refinance rate was raised:

    • From 10.25% to 10.75% on March 28, 1989

    • Further increased to 11.25% on April 16, 1990

  • To discourage volatility, an additional fee on early rediscounting of 91-day T-bills was introduced in November 1996.

• Auction Performance and Statistics

  • In 1993–94, the weekly auctions of 91-day T-bills raised ₹15,850 crore.

  • In 1994–95 (up to December 24), ₹11,650 crore was raised through the same.

  • For 364-day T-bills in fortnightly auctions:

    • ₹20,323 crore was raised in 1993–94

    • ₹16,469 crore in 1994–95

• Types and Terms of T-bills

  • Currently, the Government of India issues three types of T-bills:

    • 91-day

    • 182-day

    • 364-day

  • State Governments do not issue Treasury Bills.

  • T-bills are issued at a discount and redeemed at par.

  • They are issued in a minimum amount of ₹25,000 and in multiples thereof.

• Market Stabilisation Scheme and Auctions

  • Some Treasury Bills are issued under the Market Stabilisation Scheme (MSS).

  • T-bill auctions are conducted on the Negotiated Dealing System (NDS), where bids are electronically submitted by members.

  • Non-competitive bids are submitted via custodians or Primary Dealers who are NDS members.