What are Treasury Bills?

About Treasury Bills:

• Treasury bills or T-bills are money market instruments. These are short term debt instruments issued by the Government of India.
• Maturity period: At present, treasury bills are issued in three maturities — 91-day, 182-day and 364-day.
• These are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity.
• Who can buy?
  • Individuals, trusts, institutions and banks can purchase T-Bills. But they are usually held by financial institutions.
  • Banks give treasury bills to the RBI to get money under repo. Similarly, they can also keep it to fulfil their Statutory Liquid Ratio (SLR) requirements.
• How do T-bills work?
  • Treasury bills are issued at a discount to original value and the buyer gets the original value upon maturity. For example, a Rs 100 treasury bill can be availed of at Rs 95, but the buyer is paid Rs 100 on the maturity date.
  • The return on treasury bills depends on the liquidity position in the economy. When there is a liquidity crisis, the returns are higher, and vice versa.