Key facts about Treasury Bills in India
The bill market is a sub-market of the money market in India. There are two types of bills viz. Treasury Bills and commercial bills. While Treasury Bills or T-Bills are issued by the Central Government; Commercial Bills are issued by financial institutions.
Types of Treasury Bills
Treasury Bills are basically instruments for short term (maturities less than one year) borrowing by the Central Government. Treasury Bills were first issued in India in 1917. At present, the active T-Bills are 91-days T-Bills, 182-day T-Bills and 364-days T-Bills. The 91 day T-Bills are issued on weekly auction basis while 182 day T-Bill auction is held on Wednesday preceding Non-reporting Friday and 364 day T-Bill auction on Wednesday preceding the Reporting Friday. In 1997, the Government had also introduced the 14-day intermediate treasury bills. Auctions of T-Bills are conducted by RBI.
T-Bills are issued on discount to face value, while the holder gets the face value on maturity. The return on T-Bills is the difference between the issue price and face value. Thus, return on T-Bills depends upon auctions. When the liquidity position in the economy is tight, returns are higher and vice versa.
Who can purchase T-Bills?
Individuals, Firms, Trusts, Institutions and banks can purchase T-Bills. The commercial and cooperative banks use T-Bills for fulfilling their SLR requirements.
Advantages of Treasury Bills
Objective of issuing T-Bills is to fulfill the short term money borrowing needs of the government. T-bills have an advantage over the other bills such as:
- Zero Risk weightage associated with them. They are issued by the government and sovereign papers have zero risk assigned to them
- High liquidity because 91 days and 364 days are short term maturity.
- The secondary market of T-Bills is very active so they have a higher degree of tradability.
Treasury Bills are issued only by the central government in India. The State governments do not issue any treasury bills. Interest on the treasury bills is determined by market forces. Treasury bills are available for a minimum amount of Rs. 25,000 and in multiples of Rs. 25,000.