TREASURY BILLS Introductiony Treasury bills are the instruments of short term borrowing by the Central/State Government.

These are issued by Rbi and sold through fortnightly or monthly auction at varying discount rates depending upon the bids. Treasury bills are promissory notes which are issued at discount and for fixed period. The rate of interest on treasury bills is market determined depending upon the demand and supply of funds in money market. In india treasury bills were first issued in the year 1917. Treasury bills are considered a highly liquid and safe investment and they are also being issued under the market stabilization scheme. Treasury bills are still in the underdevelopment stage in india as compared to the other countries. Characteristics of Treasury Bills 1. T- bills are short term instruments. 2. They are in the nature of deep discount instruments. They are issued to the investors at a discount. 3. They are highly liquid and safe investment

Merits of Treasury Bills 1. Safety- Investment in treasury bills is considered to be one of the safest investment as payment of maturity value is guaranteed by the government.

2. Liquidity- Investment in T-bills is also very liquid . Treasury bills can be easily converted into cash at any time at the option of the investor . The Discount & Finance House of india announces daily buying and selling rates for T-bills. They can be discounted with Rbi. Refinance facility is also provided by Rbi against T-bills.

3. Statutory Requirement- Commercial banks are required to maintain 25% of its net demand & time liabilities in the form of Government securities. It is known as Statutory Liquidity ratio. Tbills are eligible securities for Slr purposes. This helps in maintaining CRR also for the commercial banks. 4. Source of short term funds- T-bills are very useful source of short term funds for the government. It can meet its temporary budget deficits by issuing T-bills. 5. Non- inflationary Monetary tool- Central government can use Tbills as a tool in monetary policy to control liquidity. 6. Excess liquidity in the economy can be absorbed through the issue of T-bills. Defects of T-Bills 1. Poor yield- The yield on t-bills is the lowest.Long term government securities give more interest.

2. Absence of competitive bids- Though T-bills are sold through auction to ensure market rates to the investors, in actual practice,competitive bids are absent. 3. Absence of active Trading- Investors in T-bills prefer to hold them till maturity. Therefore active trading in T-bills is affected. Types of T-Bills y There are different types of Treasury bills based on the maturity period and utility of the issuance. In India, at present, the Treasury Bills are issued for the following tenors:  91-days Treasury bills.  182-days Treasury bills.

 364-days Treasury bills.

Issue process of T-bills All T-bills are now sold through an auction process. Rbi notifies the dates of auction, their amounts and the payment dates at the beginning of every financial year.

Denominations of T-bills:

y The minimum denomination of a T-bill is Rs 25000 and above that it can be purchased in multiples of rs 25000.

Process of issue: 1. Competitive bidding 2. Non - competitive bidding.

Auction To finance the public debt, Treasury sells bills, notes, bonds, and Treasury Inflation-Protected Securities (TIPS) to institutional and individual investors through public auctions. Treasury auctions occur regularly, and have a set schedule. The auctions are announced in advance in most major newspapers and through press releases. Treasury receives bids for marketable securities from institutions and individuals once an auction is announced. Submitters can change a bid until either the noncompetitive or competitive close for that auction. A bid must conform to the terms and conditions stated in the auction announcement and with the auction rules. Treasury reviews bids received on auction day up to the close of the auction to ensure that they conform to the rules. Noncompetitive bids postmarked timely will be accepted until issue day. Once an auction closes, no more bids or changes to those bids are allowed. If you bid in an auction and your bid is accepted, you are responsible for full payment. Bidding in Auctions

Before bidding in a Treasury auction, you must decide to bid noncompetitively or competitively for Treasury bills, notes, bonds, or TIPS. Noncompetitive and competitive bidding are detailed below. Non Competitive Bidding
y

Most individual investors, who do not consider themselves expert securities traders, can bid noncompetitively to ensure that the security amount requested is accepted in the auction. You agree to accept the discount rate or yield set at the auction.

Treasury guarantees that you will receive the security for which you bid in the full amount requested up to the maximum bid limit. y Banks and primary dealers generally bid for T-bills. The bids that quote the highest price i.e. the lowest discount are accepted. 1 Uniform Price auction- In this method, government decides the cut off price. It is the price below which the government is unwilling to issue the T-bills. The successful bidders will be paying uniform price i.e. the cut off price. 2 Multiple/Discriminatory Price auction- In this method, bids quoting the lowest discount i.e. the highest price are accepted in ascending order till the notified amount is received. Thus successful bidders will be paying the price which has been quoted by them in respective bid. Non-comptitve bidding- Individuals, specified institutons, state government and eligible provident funds are allowed to participate in the auctions on Non-competitive Basis The bids given on Noncompetitive basis are outside the notified amount for the auction. Bidders in this category need not quote rate of yield at which they desire to buy these t-bills. The allotment is made at the Weighted

Average Yield calculated on the basis of yield quoted by accepted competitive bids at the auction. Form of allotment If the investor requests T-bills are issued in the form of discounted Government Promissory note otherwise they are issued as entries in the Sgl account, maintained with Rbi. Participants in T-bills: y There are many participants in T-bills market but 90% of the market is in hands of banking sector. The banks have to invest in Tbills to meet their SLR requirement. The other participants in Tbills are : 1. Primary dealers. 2. Financial Institutions 3. Insurance Companies. 4. Eligible Provident Funds 5. Non-banking Finance companies 6. Corporates 7. Foreign Instittutional Investors 8. State Governments Yield on T-bills

y T-bills are issued at discount and redeemed at the face value. Therefore yield on T-bill has to be calculated. It has to be calculated with the following formula: Yield = [(facevalue-Price)*365] ______________________ (price* No.of days to Maturity)*100 e.g. if a bank purchases a 364-day T-bill, at a price of rs 94.510, the yield is calculated as follows: Yield= [(100-94.510)*365] _________________ (94.510 *364) *100 = 2003.85 _________ *100 34401.64 = 5.825% Secondary Market For T-bills Treasury bills are mostly held till maturity by a majority of the investors. Therefore, Secondary market for T-bills is not very active. Trading is done either on National Stock Exchange or it is over the counter. T-bills are mostly held in form of book entries or it is over the counter. T-bills are mostly held in form of book entries in the Sgl account. Clearing and settlement of T-bills is through the dvp system. The system requires the parties to submit an sgl note

to the public debt office mentioning all details of the transaction. RBI then makes the entries in the Sgl account.

Role in the Money Market: 1. A fiscal role as an instrument for raising funds for governments short term needs. 2. A monetary role as an instrument with RBI to influence liquidity in the equity trading market. These T-Bills are issued by RBI at regular intervals and issued at a discount to face value. They very effectively serve as effective shortterm borrowing instruments for the Government. Even investors benefit from the same as they can park their surplus funds in these instruments and considerably reduce their market risk.

2004-05 1 1 Implicit Yield at cut-off Price (Per cent) 91-day Treasury Bills Minimum Maximum Weighted Average 182-day Treasury Bills Minimum Maximum Weighted Average 364-day Treasury Bills Minimum Maximum Weighted Average 4.43 5.77 5.15 .. .. .. 4.37 5.61 4.89 2

2005-06 2006-07 2007-08 2008-09 3 4 5 6

5.12 6.69 5.51

5.41 8.1 6.8

4.46 7.94 7.11

4.58 9.36 6.96

5.29 6.74 5.65

5.61 8.2 6.87

5.82 7.99 7.38

4.55 9.34 7.41

5.58 6.81 5.87

5.9 7.98 7.07

6.58 7.8 7.5

4.51 9.56 7.19

G Gross Issues

2004-05

2005-06 1,03,424 52,057 26,828 13,078 45,018 16,000 67,307

2006-07 1,31,577 48,222 36,912 16,125 53,813 20,440 1,00,603

2007-08 2,10,365 64,841 46,926 20,605 57,205 25,000 1,57,124

2008-09 2,65,555 16,500 44,303 7,000 54,550 9,000 2,87,605

1-day Treasury Bills 1,00,592 Issuances under MSS 67,955

82-day Treasury Bills .. Issuances under MSS ..

64-day Treasury Bills 47,132 Issuances under MSS 20,981

otal (Excluding MSS 58,788 ssuances)

CALENDAR OF AUCTION FOR TREASURY BILLS

Treasury Day of auction Bill 91 day Every Wednesday 182 day 364 day Wednesday preceding thenon-Reporting Friday Wednesday preceding the reporting Friday

Day of payment Following Friday Following Friday Following Friday

NSE launches treasury bill futures trading Leading stock exchange NSE today began trading in T-91 Bills, the shortest tenure debt securities issued by the government to meet its short-term borrowing requirements. In a statement, NSE said the interest rate futures of T-91 bills or 91-day Treasury Bills were received well by the market and 39,755 trades worth Rs 731.24 crore were conducted on the first day today. In order to meet its short-term borrowing requirements, the government issues three types of treasury bills through auction -- 91-day, 182-day and 364-day, which derive their names from their tenure or duration. NSE said trading members, including 14 prominent PSU and private banks and corporate clients, participated in trading the interest rate futures on T-91 day bills. The interest rate future for T-91 bills was announced by RBI in April last year, subsequent to which Sebi and RBI issued relevant circulars for the product and it was launched today by the NSE.

Treasury Bills - An Effective Cash Management Product  Treasury Bills are very useful instruments to deploy short term surpluses depending upon the availability and requirement.  Even funds which are kept in current accounts can be deployed in treasury bills to maximise returns.  Banks do not pay any interest on fixed deposits of less than 15 days or balances maintained in current accounts ,whereas treasury bills can be purchased for any number of days depending on the requirements. Safe Investment Options In India: Treasury Bills(TB)  Although web- based trading is at its peak in India, Treasury Bills have not lost their sheen and are still considered as the safest investment option in India.  Mutual funds and systematic investment plans (SIP) although offer a safe and secure income stream but treasury bills not only offer safety but also allow investors to trade directly in BSE and NSE. Conclusion  Treasury Bills as an asset class have been approved for SLR (Statutory Liquidity Ratio) purposes and DFHI (Discount and Finance House of India) is the stock market leader in such instruments. The bills are the only security in which the repurchase option (Repo) or ready forward transaction are permitted. Since the minimum investment amount is 25000 therefore, it becomes a nice investment option too. But even big players

sometimes loose in stock market, therefore its the perfect investment option for them too.  So after analyzing these points, you can yourself see that TBs are all time favourite for those who want to play big in stock market.

BIBLIOGRAPHY

 http://www.economypedia.com/wiki/index.php?title=Treasury_Bill  http://ganga.iiml.ac.in/~mishra/Test/mfsmakg/tbills/overview.htm  http://www.ccilindia.com/Research/Statistics/TBillDocLib/CCIL419-31032009.pdf  http://www.rbi.org.in/home.aspx  http://www.moneycontrol.com/news/business/nse-launches-treasurybill-futures-trading_562533.html .

GROUP MEMBERS      ANUJ AGRAWAL-3 AKASH DUGAR-11 PRERAK KOTHARI-18 SHASHANK VARMA- 46 ADITYA VASA-47