Just like commercial bills which represent commercial debt, treasury bills represent short-term borrowings of the Government. As well as discuss the Commercial Bills, this article explains Treasury Bills. The Treasury Bills explain in their key points; meaning, features, types, and importance. Treasury bill market refers to the market where treasury bills buy and sell. Treasury bills are very popular and enjoy a higher degree of liquidity since they issue by the government.

Explain and Learn, Treasury Bills: Meaning, Features, Types, and Importance!

Meaning and Features of Treasury Bills:

A treasury bills nothing but promissory note issued by the Government under discount for a specified period stated therein. The Government promises to pay the specified amount mentioned therein to the beater of the instrument on the due date. The period does not exceed one year. It is purely a finance bill since it does not arise out of any trade transaction. It does not require any “grading” or “endorsement” or “acceptance” since it claims against the Government.

Treasury bill issues only by the RBI on behalf of the Government. Treasury bills issue for meeting temporary Government deficits. The Treasury bill rate of discount is fixed by the RBI from time-to-time. It is the lowest one in the entire structure of interest rates in the country because of short-term maturity and degree of liquidity and security.

Definition of Treasury Bills:

Treasury Bills, also known as T-bills are the short-term money market instrument, issued by the central bank on behalf of the government to curb temporary liquidity shortfalls. These do not yield any interest, but issued at a discount, at its redemption price, and repaid at par when it gets matured.

T-bills are the key segment of the financial market, which utilizes by the government to raise short-term funds, for fulfilling periodic discrepancies between its receipts and expenditure. The difference between the issue price and the redemption value indicates the interest on treasury bills, call as a discount. These are the safest investment instrument of its category, as the risk of default is negligible. Further, the date of issue predetermine, as well as the amount also fixed.

Features of Treasury Bills:

The following features of treasury bills below are;


T-bills are issued either in physical form as a promissory note or dematerialized form by a credit to Subsidiary General Ledger (SGL) Account.


Individuals, firms, companies, trust, banks, insurance companies, provident funds, state government, and financial institutions are eligible to invest in treasury bills.

Minimum Bid:

The minimum amount of bid is Rs. 25000 and in multiples thereof.

Issue price:

T-bills are issued at a discount but redeemed at par.


The repayment of the bill is made at par on the maturity of the term.


Treasury bills are highly liquid negotiable instruments, that are available in both financial markets, i.e. primary and secondary.

Method of the auction:

Uniform price auction method for 91 days T-bills, whereas multiple price auction method for 364 days T-bill.

Day count:

The day count is 364 days, in a year, for treasury bills.

Besides this, other characteristics of treasury bills include the market-driven discount rate, selling through auction, issued to meet short-term mismatches in cash flows, assured yield, low transaction cost, etc.

Types of Treasury Bills:

In India, there are two types of treasury bills viz.

  • Ordinary or regular and
  • “Ad hoc” known as “Ad Hoc’s” ordinary treasury bills are issued to the public and other financial institutions for meeting the short-term financial requirements of the Central Government.

These bills are freely marketable and they can buy and sell at any time and they have secondary market also.

On the other hand ‘ad Hoc’s’ are always issued in favor of the RBI only. They are not sold through tender or auction. Also, they are purchased by the RBI on top and the RBI authorizes to issue currency notes against them.

Government explains:

They are marketable sell them back to the RBI. Ad Hoc’s serve the Government in the following ways:

  • They replenish the cash balances of the central Government. Just like State Government get advance (ways and means advances) from the RBI, the Central Government can raise finance through this Ad Hocs.
  • They also provide an investment medium for investing the temporary surpluses of State Government, semi-government departments and foreign central banks.

Based on periodicity, treasury bills may classify into three they are:

91 days T-bills:

The tenor of these bills complete on 91 days. These are an auction on Wednesday, and the payment makes on the following Friday.

182 days T-bills:

These treasury bills get matured after 182 days, from the day of issue, and the auction is on Wednesday of non-reporting week. Moreover, these are repaying on following Friday, when the term expires.

364 days T-bills:

The maturity period of these bills is 364 days. The auction is on every Wednesday of reporting week and repay on the following Friday after the term gets over.

Treasury bills are backed by some advantages like no tax deducted at source, high liquidity and trade-ability, zero risks of default, transparency, a good return on investment and so on.

Ninety-one day’s treasury bills are issuing at a fixed discount rate of 4% as well as through auctions. 364 days bills do not carry any fixed rate. The discount rate on these bills quotes in the auction by the participants and accepted by the authorities. Such a rate calls cut off rate. In the same way, the rate is fixed for 91 days treasury bills sold through auction. 91 days treasury bills (top basis) can rediscount with the RBI at any time after 14 days of their purchase. Before 14 days a penal rate charges.

Operations and Participants:

The RBI holds day’s treasury bills (TBs) and they issue on top basis throughout the week. However, 364 days TBs are selling through the auction which conducts once in a fortnight. The date of auction and the last date of submission of tenders are notified by the RBI through a press release. Investors can submit more than one bid also.

On the next working day of the date auction, the accepted bids with prices are displaying. The successful bidders have to collect letters of acceptance from the RBI and deposit the same along with the cheque for the amount due on RBI within 24 hours of the announcement of auction results.

Institutional investors like commercial banks, DFHI, STCI, etc, maintain a subsidiary General Ledger (SGL) account with the RBI. Purchases and sales of TBs are automatically recording in this account invests who do not have SGL account can purchase and sell TBs through DFHI. The DFHI does this function on behalf of investors with the bits of the help of SGL transfer forms. The DFHI is actively participating in the auctions of TBs.

It is playing a significant role in the secondary market also by quoting daily buying and selling rates. It also gives buy-back and sell-back facilities for the period’s up to 14 days at an agreed rate of interest to institutional investors. The establishment of the DFHI has imported greater liquidity in the TB market.

The participants in this market are the followers:
  1. RBI and SBI.
  2. Commercial banks.
  3. State Governments.
  4. DFHI.
  5. STCI.
  6. Financial institutions like LIC, GIC, UTI, IDBI, ICICI, IFCI, NABARD, etc.
  7. Corporate customers, and.
  8. Public.

Through many participants are there, in actual practice, this market is in the hands of the banking sector. It accounts for nearly 90 % of the annual sale of TBs.

Treasury Bills_ Meaning Features Types and Importance - ilearnlot
Treasury Bills: Meaning, Features, Types, and Importance!

Importance of Treasury Bills:

The following importance of treasury bills below is:


Investments in TBs are highly safe since the payment of interest and repayment of principal are assured by the Government. They carry zero default risk since they are issuing by the RBI for and on behalf of the Central Government.


Investments in TBs are also highly liquid because they can convert into cash at any time at the option of the inverts. The DFHI announces daily buying and selling rates for TBs. They can discount with the RBI and further refinance facility is available from the RBI against TBs. Hence there is a market for TBs.

Ideal Short-Term Investment:

Idle cash can profitably invest for a very short period in TBs. TBs are available on top throughout the week at specified rates. Financial institutions can employ their surplus funds on any day. The yield on TBs also assures.

Ideal Fund Management:

TBs are available on top as well through periodical auctions. They are also available in the secondary market. Fund managers of financial institutions build the portfolio of TBs in such a way that the dates of maturities of TBs may match with the dates of payment on their liabilities like deposits of short-term maturities. Thus, TBs help financial manager’s it manages the funds effectively and profitably.

Statutory Liquidity Requirement:

As per the RBI directives, commercial banks have to maintain SLR (Statutory Liquidity Ratio) and for measuring this ratio of investments in TBs takes into account. TBs are eligible securities for SLR purposes. Moreover, to maintain CRR (Cash Reserve Ratio). TBs are very helpful. They can readily convert into cash and thereby CRR can maintain.

Source of Short-Term Funds:

The Government can raise short-term funds for meeting its temporary budget deficits through the issue of TBs. It is a source of cheap finance to the Government since the discount rates are very low.

Non-Inflationary Monetary Tool:

TBs enable the Central Government to support its monetary policy in the economy. For instance excess liquidity, if any, in the economy can absorb through the issue of TBs. Moreover, TBs are subscribing by investors other than the RBI. Hence they cannot mention and their issue does not lead to any inflationary pressure at all.

Hedging Facility:

TBs can use as a hedge against heavy interest rate fluctuations in the call loan market. When the call rates are very high, money can raise quickly against TBs and invest in the call money market and vice versa. TBs can use in ready forward transitions.

Defects of Treasury Bills:

The following defects of treasury bills below are;

Poor Yield:

The yield form TBs is the lowest. Long-term Government securities fetch more interest and hence subscriptions for TBs are on the decline in recent times.

Absence Of Competitive Bids:

Though TBs sell through auction to ensure market rates for the investors, in actual practice, competitive bids are conspicuously absent. The RBI compels to accept these non-competitive bids. Hence adequate return is not available. It makes TBs unpopular.

Absence Of Active Trading:

Generally, the investors hold TBs till maturity and they do not come for circulation. Hence, active trading in TBs adversely affects.


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