Treasury Bills

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Treasury Bills


The government must raise funds to finance its spending programme. Apart from its income from tax and non-tax revenue sources, the Government borrows a significant amount from the market through issue of securities called Government securities in order to bridge the shortfall in revenue.

These Government Securities are tradable instruments and are issued by the Reserve Bank of India, on behalf of Government of India, under Central Government's market borrowing programme. Such securities are auctioned in the primary market for players like commercial banks, primary dealers, state and central governments, financial institutions, insurance companies and individuals. The securities are then traded in the secondary market by the market participants.

While the Central Government issues both: treasury bills(T-bills) which are short term with maturities of less than one year, and Government bonds or dated securities(CGs) which are long term securities with maturities of one year or more, the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). Since the G-Secs carry sovereign guarantee, the risk of default is, practically, zero.

PNB Gilts Ltd. has played a pivotal role in strengthening the domestic fixed income markets. As a primary dealer, PNB Gilts Ltd. invests and trades primarily in Government securities. The company’s primary activities entail supporting the government borrowing programme via underwriting of Government securities issuances, participating in the auction of G-secs and actively trading in a gamut of fixed income instruments such as CGs, T-Bills, SDLs, Corporate Bonds, Interest Rate Swaps and various money market instruments such as Certificates of Deposits, Commercial Papers, etc. thus contributing to a deep and broad-based market. The PD model is such that besides our own net-worth, borrowing from the money market forms the most important part of our daily function. We, as standalone PDs, are only akin to banks when it comes to participation in all money market instruments. We borrow from the call money market, repo markets, TREPS, and we also have a standing liquidity facility(refinance) from RBI. We are also active players in the equity, interest rate derivatives and currency derivative segments. The company has a dedicated trading desk managed by experienced professionals having strong research and market insights and is a dominant player marking its presence with significantly high market share in the overall trading turnover.

Treasury Bills (T-bills):

Treasury bills, or T-bills, finance the short-term requirements of the government. They form an integral part of the money market and are currently issued in three tenors, namely, 91 day, 182 day and 364 day. 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. The return to the investors is the difference between the maturity value or the face value and the issue price.

Issuance and bidding:

Treasury Bills are issued only by the Central Government with original maturities of less than one year through auctions conducted by the Reserve Bank of India. The Reserve Bank of India announces the issue details of T-bills through a press release on its website every week. The auctions are held on the E-kuber platform of the RBI where the members electronically submit their bids on the system. Settlement for the T-bills auctioned is made on T+1 day ,i.e., on the working day following the trade day. While institutional investors, like financial institutions, banks, mutual funds and primary dealers, are eligible to make competitive bids, non-competitive bidders like individuals, trust, firms, corporate bodies or institutions may place their bids through respective custodians or any bank or PD which is a Negotiated Dealing System(NDS) member. Since T-Bills are essentially money market instruments, the day count convention of actual/365 is followed.

Who can invest:

T-bills can be purchased by any entity registered in India, such as banks, financial institutions, primary dealers, corporate bodies, institutions, mutual funds, state governments, trusts and even individuals in both primary as well as secondary markets.

Why invest in T-Bills:

  • Zero default risk as they are guaranteed by the Government of India

  • Qualifies under SLR Investment

  • They are an ideal investment for risk-averse individuals as well as for experienced investors to reduce the overall risk to their portfolio.

  • Ideal products for portfolio diversification and reducing duration of the portfolio

  • Good returns and high liquidity in the short term

  • Suitable option for management of unplanned and short-term funds

Cash Management Bills:

In order to meet the temporary mismatches in the cash flow of the Government of India , Government of India, in consultation with RBI introduced a new short-term instrument, known as Cash Management Bills (CMBs) in the year 2010. CMBs have the all attributes of T-bills but are issued for maturities less than 91 days. The tenor, notified amount and date of issue of the CMBs depend upon the temporary cash requirement of the Government. Like T-bills, CMBs are also issued at a discount and redeemed at face value on maturity. Unlike T-Bills, non-competitive bidding scheme has not been extended to CMBs. However, these instruments are tradable and qualify as SLR investment.

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