What is Treasury bills Definition And Meaning
They are Instruments for short-term borrowing by the government. The bills are promissory notes to pay to the bearer after the maturity period. The bills are issued by tender to the Money Market and to Government Departments.
Tenders are invited every week from bankers, discount houses and brokers. The Treasury Bills provide the government with a highly flexible and relatively cheap means of borrowing money to meet its fluctuating needs for cash.
In the past there were only 91days treasury bills, which were traded in the Indian money market. The new instruments introduced by the RBI are: 182 days treasury bills, 364 days treasury bills, longer maturity treasury bills, dated Governments securities, certificates of deposits and commercial paper.
At one time, the demand for the treasury bills by commercial banks was solely governed by Statutory Liquidity Ration (SLR) considerations. This is not true any more. Besides, the secondary market transactions in them are being increasingly driven by the felt-need for effective management of short-term liquidity by the commercial banks.
182 days treasury bills were variable interest bills and were sold through fortnightly auctions. The yield of these long-dated papers had become attractive for a highly liquid instrument. These were replaced by 364 days treasury bills.
364 days treasury bills there is a considerable scope for banks and financial institutions to be interested in long-dated bills, as they are far superior to their loan assets and investments which cannot be easily liquidated in times of need, without incurring heavy loses. The 364 days Treasury Bills have thus become an important instrument of Government borrowing from the market and also leading money market instrument in the sense that their yield is most reflective of market conditions. Financial institutions recongnise the yield rate on 364 days Treasury Bills–at present around 12.5 to 13 percent–as anchor rate on the basis of which interest rate instruments are floated.
The fortnightly offerings of these bills bring in, annually, about Rs. 20,000 crores to the Government. These bills are entirely held by the market and RBI does not subscribe to them. RBI introduced two more Treasury Bills in 1997:
(i) 14 days Intermediate Treasury Bills from April 1997 at a discount rate equivalent to the rate of interest on ways and means advances to the Government of India–these bills cater to the needs of State Governments, foreign central banks and other specified bodies (these have surplus funds which can be invested for very short periods)
(ii) A new category of 14 days Treasury Bills, sold through action for the first time in June 1997 to meet the cash management requirements of various sections of the economy.
They are Instruments for short-term borrowing by the government. The bills are promissory notes to pay to the bearer after the maturity period. The bills are issued by tender to the Money Market and to Government Departments.
Tenders are invited every week from bankers, discount houses and brokers. The Treasury Bills provide the government with a highly flexible and relatively cheap means of borrowing money to meet its fluctuating needs for cash.
[Post Image Courtesy of Marin at FreeDigitalPhotos.net]
In the past there were only 91days treasury bills, which were traded in the Indian money market. The new instruments introduced by the RBI are: 182 days treasury bills, 364 days treasury bills, longer maturity treasury bills, dated Governments securities, certificates of deposits and commercial paper.
At one time, the demand for the treasury bills by commercial banks was solely governed by Statutory Liquidity Ration (SLR) considerations. This is not true any more. Besides, the secondary market transactions in them are being increasingly driven by the felt-need for effective management of short-term liquidity by the commercial banks.
182 days treasury bills were variable interest bills and were sold through fortnightly auctions. The yield of these long-dated papers had become attractive for a highly liquid instrument. These were replaced by 364 days treasury bills.
364 days treasury bills there is a considerable scope for banks and financial institutions to be interested in long-dated bills, as they are far superior to their loan assets and investments which cannot be easily liquidated in times of need, without incurring heavy loses. The 364 days Treasury Bills have thus become an important instrument of Government borrowing from the market and also leading money market instrument in the sense that their yield is most reflective of market conditions. Financial institutions recongnise the yield rate on 364 days Treasury Bills–at present around 12.5 to 13 percent–as anchor rate on the basis of which interest rate instruments are floated.
The fortnightly offerings of these bills bring in, annually, about Rs. 20,000 crores to the Government. These bills are entirely held by the market and RBI does not subscribe to them. RBI introduced two more Treasury Bills in 1997:
(i) 14 days Intermediate Treasury Bills from April 1997 at a discount rate equivalent to the rate of interest on ways and means advances to the Government of India–these bills cater to the needs of State Governments, foreign central banks and other specified bodies (these have surplus funds which can be invested for very short periods)
(ii) A new category of 14 days Treasury Bills, sold through action for the first time in June 1997 to meet the cash management requirements of various sections of the economy.
What is Treasury bills Definition And Meaning
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