TREASURY BILLS MARKET. TB is a kind of a promissory note put out by the government of a country. It...
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Transcript of TREASURY BILLS MARKET. TB is a kind of a promissory note put out by the government of a country. It...
TREASURY BILLS MARKET
TB is a kind of a promissory note put out by the government of a country. It is
only the central govt. that sells TB in India after 1950.
Qualities of TBs:
High liquidityAbsence of risk of
default ready availability on
tapAssured yieldLow transaction costNegligible capital
depreciation
Two types of TBs have been in vogue in India-o Ordinaryo Adhoc (1937- Ist. April 1997)o A system of Ways and Means (WAM)
introduced on Ist. April 1997, to accommodate mismatch between GOI receipts and payments.
System of Marketing
• TBs are issued by tender or on tap. Until 1965, they were sold to the public by tender or at weekly auctions.
• With effect on 12th July 1965, they were available on tap throughout the week at rates announced from time to time.
• This change in the procedure of selling TBs facilitates investment in them by commercial banks as an when their resources increased.
• Banks’ participation in TBS is much more significant in India than those of UK and US.
Limitations of TBM in India
• Only RBI ( whereas banks and discount houses deals in TBM in UK)
• Low rate of return on investment.
• Investing in GSM is without risk and a relatively higher return, FIs are also required to invest in GSM.
• Banks in India are required to invest in GSM for maintaining their SLR, this has reduced the importance of TBM as an investment medium.
Chakravarty and Vagul Committee
• The major suggestion made by them was to deregulate and revise the TBs rate upwards.
• Since then the fixed rate of discount of 4.6% on of 91 –day TBs was replaced by the system of flexible interest rate.
• From 1993 the TB rate became market determined.
182-Day TBM
• To widen the money market, a 182 day TB was introduced in November 1986.
• This bill could be purchased by any person in India but unlike 91 day TBs, they were not purchased by state govts. and for provident funds.
• The 182 day TBs ceased to be issued from October 1992. the bill thus had a short life span of about 6 years.
364-Day TBM
• Introduced in 1992.• The return on this particular bill is quite high
compare to other bills.• Features are similar with that of 182 day TBs.
14- Day TBM
• Intermediate TB introduced on Ist April 1997 and 20th May 1997.
• Sold only to state govts., foreign central banks and other specified bodies to invest their temporary cash surpluses (in place of 91-day).
• It can be renewed on the expiry of the 14 days from the date of issue.
• The discount rate is set at quarterly intervals.• The state govts and other investors who used
to receive a 4.6% fixed rate can now receive a market determined interest.
• Disadvantage: Not tradeable or transferable.
RECENT DEVELOPMENTS IN TBM
• THE RBI ISSUED ONLY 91-DAY AND 364 DAY TBs.
• 364-DAY IS MUCH BIGGER NOW THAN THE 91-DAY TBM.
• THE 364-DAY TBs ACCOUNT FOR THE MAJOR PROPORTION OF THE OUTSTANDING TBs.