Treasury Bill

Treasury bills are a class of Central Government Securities. These securities are issued by the RBI on behalf of the government of India but it belongs to Government only. It is issued in the form of promissory notes or credited to Subsidiary General Ledger (SGL) account of the holder. As this instrument belongs to Government and having shorter maturity is considered virtually risk free.They are the most liquid instruments after cash.The main investors are banks cause T-bills are eligible for Statutory Liquidity Ratio (SLR).

 

Who can invest in treasury bills?

 

All entities registered in India like banks, financial institutions, Primary Dealers, firms, companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, State Governments, Provident Funds, trusts, research organizations, Nepal Rashtra bank and individuals are eligible to bid and purchase Treasury bills.

Bids for treasury bills are to be made for a minimum amount of Rs 25000/- only and in multiples thereof.

 

Types of treasury bills:

1. Treasury bills (T-bills) offer short-term investment opportunities, generally up to one year.
2. They are thus useful in managing short-term liquidity. 
3. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day
4. There are no treasury bills issued by State Governments.

Auction of treasury bills:

1. T-bills are sold through an auction process announced by the RBI at a discount to its face value (face value is Rs.100 for treasury bills)
2. RBI issues a calendar of T-bill auctions
3. It also announces the exact dates of auction, the amount to be auctioned and payment dates.

Auction calendar:

Notified amount for auction of Treasury Bills (April 1, 2011 to June 30, 2011)
(` Crore)
Date of Auction	91 Days	182 Days	364 Days	Total
6-Apr-11	4,000		2,000	6,000
13-Apr-11	4,000	2,000		6,000
20-Apr-11	4,000		2,000	6,000
27-Apr-11	4,000	2,000		6,000
4-May-11	5,000		2,000	7,000
11-May-11	5,000	2,000		7,000
18-May-11	5,000		2,000	7,000
25-May-11	5,000	2,000		7,000
1-Jun-11	5,000		2,000	7,000
8-Jun-11	5,000	2,000		7,000
15-Jun-11	5,000		2,000	7,000
22-Jun-11	5,000	2,000		7,000
29-Jun-11	6,000		2,000	8,000
Total	62,000	12,000	14,000	88,000

 Source: www.rbi.org.in

Calculation of Yield:

Yield = [(FV-P)/P]*(365/N)*100

Where,

• FV= Face value
• P= Price
• N= Days to maturity

 Let say 91 day treasury bill is issued at a price of Rs.98. What will be the yield?

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