T-bills (Treasury bills)

T-bills (Treasury bills)

Subject: Economy

Context: Treasury bill yields rise in India after RBI’s cash move. The 190 billion rupees ($2.6 billion) sale was the first sovereign auction since the Reserve Bank of India said late on Friday it plans to drain cash via a reverse repo operation.

Concept:

• The government raised fund from financial market in two ways: 1) T bills (treasury bills). 2) Government Bonds.
• T-bills are the instruments for raising fund by the government for the short-term up to a year.
• These bills are issued by the Central government only and interest rate is determined by the market forces. It is issued at a discount to original value and the buyer gets the original value upon maturity. For example, a Rs 100 treasury bill can be availed of at Rs 90, but the buyer is paid Rs 100 on the maturity date.
• They are issued via auctions conducted by the Reserve Bank of India (RBI) at regular intervals. Individuals, trusts, institutions and banks can purchase T-Bills.
• The returns on T-bills are influenced by the liquidity as well. When there is liquidity crisis than the yield is higher on the T-bills.
• It is considered a very safe financial instrument for zero-risk weightage attached to it.
• Banks give treasury bills to the RBI to get money under repo. Similarly, they can also keep it to fulfil their Statutory Liquid Ratio (SLR) requirements.
• Treasury bills, or T-bills, have a maximum maturity period of 364 days and thus called money-market instruments.
• Currently they are issued in three maturities: 91-day, 182-day and 364-day (earlier 14-day bill was also issued).
• T-bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000.
• The 91-day T-bills are auctioned every week on Friday and 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays. The Reserve Bank of India issues a calendar of T-bill auctions.
• Government paper with tenor beyond one year is known as dated security. At present, there are dated securities with a tenor up to 20 years in the market