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Treasury Bills
Treasury Bills are the instruments of short term borrowing by the Central/State government under discount for a specified period and promises to pay the specified amount to the bearer on due date. First issued in India in 1917. The period does not exceed a year.
Ad Hoc:
Issued in favor of RBI only. They are not sold through tender or auction. Service to government: 1. They replenish cash balances of the central government and can rise finance. 2. They provide an investment medium to invest the temporary surpluses of state government, semi government ,departments and foreign central banks.
Operation:
The date of auction and the last date of submission of tenders are notified by the RBI through a press release.
The next working day : the date of auction ,the accepted bids with the prices are displayed.
The successful bidders have to collect letters of acceptance from the RBI and deposit the same along with a cheque within 24 hours of the announcement of auction results.
Investors maintain a Subsidiary General Ledger(SGL) account with the RBI. Purchases and the sales of TBs are recorded in this account and investors who do not have SGL account can do it through DFHI. The DFHI is actively participating in the auctions of TBs. It plays a significant role in secondary market also by quoting daily buying and selling rates. It also gives buy-back and sell- back facilities for periods upto 14 days at an agreed rate of interest to investors.
Participants
I. RBI and SEBI II. Commercial banks III.State governments IV.DFHI V. STCI VI.Financial institutions like LIC , GIC , UTI, IDBI, ICICI, IFCI, NABRD VII.Corporate customers VIII.Public
MERITS
Safety Liquidity Ideal short term investment Ideal fund management Statutory liquidity requirement Source of short term funds Non inflationary monetary tool
Demerits:
Poor yield Absence of competitive bids Absence of active trading