Features of Treasury Bills
Treasury Bills are short-term, rupee denominations issued by the Reserve Bank of India (RBI) on behalf of the Government of India. T-bills are issued in the form of promissory notes or finance bills (a bill which does not arise from any genuine transaction in goods is called a finance bill) by the government to tide over short-term liquidity shortfalls.
These short-term instruments are highly liquid and virtually risk-free. These are the most liquid instrument after cash and call money, as the repayment guarantee is given by the central government.
Treasury bills do not require any grading or further endorsement like ordinary bills, as they are claims against the Government. These instruments have distinct features like zero default risk, assured yield, low transactions cost, negligible capital depreciation and eligible for inclusion in Statutory Liquidity Ratio (SLR) and easy availability, etc., apart from high liquidity.
The Reserve Bank of India acts as a banker to the Government of India. It issues T-bills and other government securities to raise funds on behalf of the Government of India, by acting as an issuing agent.
Though various groups of investors including individuals are eligible to invest, the main investors found in treasury bills are mostly banks to meet their Statutory Liquidity Ratio (SLR) requirements. Other large investors include:
- Financial Institutions (for primary cash management).
- Insurance Companies.
- Provident Funds (PFs) (as per investment guidelines).
- Non-banking Finance Companies (NBFCs).
- Foreign Institutional Investors (FIIs).
- State Governments.
Non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) are also allowed to invest but only on non-repatriable basis. The RBI issues both bids on competitive and non-competitive basis. Eligible Provident Funds (i.e., the non-government provident funds governed by the Provident Fund Act, 1925 and employees PFs and Miscellaneous Provisions Act, 1952 whose investment pattern is decided by Government of India), State governments, and the Nepal Rastra Bank can participate in the auctions on ‘non-competitive' basis. The scheme of non-competitive bidding to encourage mid-segment investors like individuals, Hindu Undivided Families (HUFs), PFS, Urban Cooperative Banks (UCBs), NBFCs, Trusts, etc., to participate in the primary market of government securities, were operationalized in January 2002.