What are Treasury Bills?

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Overview:

Recently, the Government of India, in consultation with the Reserve Bank of India notified the calendar for the issuance of Treasury Bills for the quarter ending June 2024.

About Treasury Bills

  • Treasury bills or T-bills are money market instruments.
  • These are short term debt instruments issued by the Government of India.
  • Maturity period: At present, treasury bills are issued in three maturities — 91-day, 182-day and 364-day.
  • These are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity.
  • Who can buy?
    • Individuals, trusts, institutions and banks can purchase T-Bills. But they are usually held by financial institutions.
    • They have a very important role in the financial market beyond investment instruments.
    • Banks give treasury bills to the RBI to get money under repo. Similarly, they can also keep it to fulfil their Statutory Liquid Ratio (SLR) requirements.
  • How do T-bills work?
    • Treasury bills are issued at a discount to original value and the buyer gets the original value upon maturity.
    • For example, a Rs 100 treasury bill can be availed of at Rs 95, but the buyer is paid Rs 100 on the maturity date.
    • The return on treasury bill depends on liquidity position in the economy. When there is a liquidity crisis, the returns are higher, and vice versa.

Q1) What is the money market?

It is defined as dealing in debt of less than one year. It is primarily used by governments and corporations to keep their cash flow steady, and for investors to make a modest profit. 

Source: Calendar for Auction of Government of India Treasury Bills