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What are Treasury Bills ?

by Uddipana Gogoi

Treasury bills are money market instruments. The Reserve Bank of India issues such bills on behalf of the Government of India. It helps to adjust short term liquidity positions in the economy. Moreover, such instruments are issued at a discount to the face value. Accordingly, banks, NBFCs, corporates and other institutional  buyers make investment in such instruments. Thus, when there is excess money supply in the economy the RBI sells/issues it in the money market to absorb excess money from the economy. Similarly, when there is deficit in money supply in the economy, the RBI purchases it in the market to inject money in the economy to manage the shortage of money. Thus, the RBI uses it as an instrument or tool to manage the short run excess or deficit in supply of money in the economy. Different types of such bills are-

  1. 14 days treasury bills
  2. 91 days treasury bills
  3. 182 days treasury bills
  4. 364 days treasury bills

In recent times (2002–03, 2003–04), the Reserve Bank of India has been issuing only 91-day and 364-day treasury bills.

Characteristics of treasury bills

1. Money market instrument:

  RBI purchases and sells it under the money market in open market operation. It helps to adjust short run excess and deficit in supply of money in the economy.

2. Time duration:

It is a short term money market instruments. Hence, It is generally covers period for 14 days, 91 days, 182 days, 364 days etc.

3. Amount/value:

It is offered at a minimum of Rs.25000 and multiples of it. Moreover, it is issued at a discount and sold at par. 

4. Risk free:

The Government of India backs such instruments. Hence, this instrument is free from risk of default or any kind of loss.

5. Auction:

On behalf of the Government of India, RBI auctions it for retail and small scale investors. It takes place every Wednesday of the week.

6. Participants:

Banks, NBFCs, Corporates and institutional buyers are investors in such bills. 

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