Treasury Bills (T-Bills)

T-Bills are one of the most important instruments in virtually all the money markets in the world. T-Bills are issued by the Government for periods ranging from 14 days to 364 days through regular auctions. They are highly liquid instruments and demand is largely from banks, financial institutions and corporations. Fundamentally, T- Bills are short term instruments issued by RBI on behalf of the Government of India to tide over short term liquidity shortfalls. T-Bills market is much more liquid than that for dated Government of India securities because of shorter tenure of T-Bills.

Treasury bills are the shortest-term Treasury securities, those that mature within a year (from the time they are issued). The Treasury issues three- and six-month bills weekly and a one-year bill (the so-called year bill) once a month.

Treasury bills are discount instruments. Rather than making interest payments, they are issued at a discount to face value and mature at face value. The interest rate is a function of the purchase price, the face value and the time remaining till maturity.

Bills are quoted in terms of their discount rate, or interest rate based on a 360-day year. As with bond yields, when the discount rate is going up, a bill is losing value. A “bond-equivalent yield” can be calculated for a bill, to allow for a comparison with other debt instruments.

There are three categories of T-Bills.

• On-To Bills: Can be bought from the RBI at any time at an interest yield of 4.663 per cent. But, with the deregulation of the interest rates, they have lost much of their relevance.
• Ad hoc T-Bills: are created to replenish the Government’s cash balances with the RBI. Thus, they essentially are just an accounting measure in RBI’s books. They have a maturity period of 91 days, but can be redeemed prior to the final date of maturity, because for them the dealing is only between the Government and the RBI.
• Auctioned T-Bills: First introduced in April 1992 are the most active of the three categories. In effect, they are the only one among the three categories which can actually be called an active money market instrument.

Treasury bill short term money market instrument as well as short term security by which the Government raises finance to meet its short term requirements the investment in the Treasury Bill is reckoned for the purpose of Statutory Liquidity Reserve (SLR) requirements. The periodicity is 14 days, 28 days,91 days, 182 days and 364 days. Periodically, RBI comes out with the T-Bills auctions, whereas only in the case of 91 days T-Bills, the amount is notified.

T-Bills transactions are routed through the Special General Ledger (SGL) accounts. Being a short term instrument, it has a good secondary market. Apart from others, all the participants in the money market can sell the T-Bills, including the parties who participate in the T-Bills auctions to the non-competitive bids. In absence of a developed money market, the T-Bill becomes a reference rate for the relative maturities.