Reserve Bank Introduces 14-Day T-Bills

The Reserve Bank of India (RBI) has announced the introduction of 14-day intermediate treasury bills as an alternative to the on-tap treasury bills being phased out from today.

The discount rate for the 14-day bills will be set every three months and the effective yield on this instrument will be equivalent to the interest rate on ways and means advances (WMA).

As per an agreement signed between the RBI and the government, the interest rate on ways and means advances has been fixed at three percentage points below the average yield of 91-day T-bills in the preceding quarter.

The bills will be sold only to state governments, foreign central banks and other specified bodies. The introduction of the 14-day bills implies that the RBI will not have to bear the burden of finanicing the needs of the government under WMA.

 

The 14-day bills will be sold for a minimum amount of Rs 1 lakh and its multiples. The bills will be repaid or renwed at par after 14 days from the date of issue. The bills are not transferable and can be rediscounted at 50 basis points higher than the discount rate. The bills will be extinguished on rediscounting. They will be issued only in book entry form, that is, by credit to the subsidairy general ledger account.

At present, the RBI issues treasury bills with maturities of 91 days and 364 days. While the 91-day treasury bills are auctioned every Friday, the 364-day T-bills are auctioned on alternate Wednesdays.