T Bills Market In India

Roshni Singh Priyanka Pagedar Jinal Sorathia Mehul Patel

Meaning
Treasury bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, viz., 91 day, 182 day and 364 day. They are issued at a discount and redeemed at the face value at maturity.

Just like commercial bills which represent commercial debt, treasury bills represent short-term borrowings of the Government. Treasury bill market refers to the market where treasury bills are brought and sold. Treasury bills are very popular and enjoy higher degree of liquidity since they are issued by the government.

The Reserve Bank of India also announces the Issue details of Treasury bills by way of press release every week

Treasury bill are issued only by the RBI on behalf of the Government. Treasury bills are issued for meeting temporary Government deficits.

The Treasury bill rate of discount is fixed by the RBI from time-to-time. It is the lowest one in the entire structure of interest rates in the country because of short-term maturity and degree of liquidity and security.

Features of treasury bills

A treasury bills nothing but promissory note issued by the Government under discount for a specified period stated therein. The Government promises to pay the specified amount mentioned therein to the beater of the instrument on the due date. The period does not exceed a period of one year. It is purely a finance bill since it does not arise out of any trade transaction.

Evolution Of T- Bills
Main reason of Govt. borrowings is Wars. The First public borrowing used by Holland in 1542 than this idea was used by British govt. and later it was used by U.S. govt. However all security was long term so they needed to issue short term security for fulfilling the deficit of govt. and for liquidity purpose.

The Treasury Bills created by British govt. in 1877 at the urging of Walter Bagehot, editor of The Economist.

T-Bills Market In India

Main Instruments for short term borrowings. In 1950State govt. also issued it. In the terms of liquidity, for short term financing the descending order is cash, cash loan, treasury bills and commercial bills . T- Bills are claim against the govt. and do not require any grading or further endorsement or acceptance.

The market for T- Bills in India is evolved over a time.

Types of T- Bills
In India, there are two types of treasury bills viz. 1. Ordinary or regular public and other Financial institution easy marketable

2. Ad hoc known as ad hocs- favor of the RBI onlypurchased by the RBI on top -the RBI is authorized to issue currency notes against them. On the basis of periodicity, treasury bills may be classified into three they are: 1. 91 Days treasury bills, 2. 182 Days treasury bills 3. 364 Days treasury bills.

Amount
Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000. Treasury bills are issued at a discount and are redeemed at par. Treasury bills are also issued under the Market Stabilization Scheme (MSS).

Auctions
91-day T-bills are auctioned every week on Wednesdays, 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays. The Reserve Bank of India issues a quarterly calendar of T-bill auctions which is available at the Banks website. It also announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction

Payment
Payment by allottees at the auction is required to be made by debit to their/ custodians current account.
Types of T- Bills 91 Days 182 Days 364 Days Day of Action Wednesday Wednesday of non reporting week Wednesday of reporting week Day of Payment Following Friday Following Friday Following Friday

Issue Mechanism
The RBI holds days treasury bills (TBs) and they are issued on top basis throughout the week. However, 364 days TBs are sold through auction which is conducted once in a fortnight. The date of auction and the last date of submission of tenders are notified by the RBI through a press release.

Investors can submit more than one bid also. On the next working day of the date auction, the accepted bids with prices are displayed.

The successful bidders have to collect letters of acceptance from the RBI and deposit the same along with cheque for the amount due on RBI within 24 hours of the announcement of auction results.

Participants
The bulk of these bills is purchased & held by the RBI.

A part from the RBI, the T-Bills are also purchased by commercial banks, state governments & other approved bodies & financial institutions like LIC, UTI & so on.

The RBI & banks taken together account for about 90% of the sales of T-Bills every year.

In terms of outstanding, the RBI is the only major holder of the T-Bills. Since November 1986, RBI has introduced two measures to reduce the size of its holding of these bills.

Recycling of T-Bills rediscounted bills to banks

i.e.

selling

bake

Imposition of an additional early rediscounting fee for rediscounting bills within 14 days of purchase.

Importance of Treasury Bills

Safety Liquidity Ideal Short-Term Investment Ideal Fund Management Statutory Liquidity Requirement Source Of Short-Term Funds Non-Inflationary Monetary Tool Hedging Facility

Comparison with the international market

The T-Bills market till the beginning of 1990s has been described. The T-Bill markets at that point of time were highly undeveloped as compared to the those in countries like USA & UK. In the USA & the UK treasury bills are the most important money market instrument.

The RBI has been the chief holder of T-Bills holding about 93% of such outstanding bills at the end of mach 1986.
The two main reasons for this are listed below

1. Illiquid secondary market 2. Administered interest rate

Defects of Treasury Bills

Poor Yield Absence Of Competitive Bids

Absence Of Active Trading

Future T-Bill
A future contract on T-bills on expiry calls for delivery of T-bills maturing 91 days. The futures contracts on commodities require delivery of the underlying commodity on the maturity of the contract.

T-Bill

t=0 Future position

t = T( Maturity ) Matures T-bill delivered

t = T + 91 days T-bill Matures

( Future contract on T-bill )

Yield Calculation
Illustration
Assuming that the price of a 91 day Treasury bill at issue is Rs.98.20, the yield on the same would be

After say, 41 days, if the same Treasury bill is trading at a price of Rs. 99, the yield would then be

Note that the remaining maturity of the treasury bill is 50 days (9141).

Thank You