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Overview of Treasury Bills as short-term government securities in India, covering their structure, liquidity features, and role in money market operations.
Treasury Bills form part of India’s short-term government borrowing framework and support the functioning of the money market through structured issuance and redemption cycles. These instruments operate within the Reserve Bank of India’s auction system and are integrated into institutional liquidity operations, providing a standardised mechanism for short-duration capital deployment.
Treasury Bills are money market instruments issued by the government to meet short-term funding requirements. They have maturities of less than one year and are issued at a discount to their face value. Instead of paying periodic interest, the return is represented by the difference between the issue price and the redemption value at maturity.
For example, if a ₹100 Treasury Bill is issued at ₹96, the ₹4 difference received at maturity represents the return.
Treasury Bills (T-Bills) are short-term sovereign debt instruments issued by the Government of India to manage temporary funding requirements and support liquidity in the financial system. Administered through auctions conducted by the Reserve Bank of India, T-Bills also serve as benchmark instruments for short-term interest rates in the money market.
Beyond government financing, they are widely used by banks and financial institutions for liquidity deployment and regulatory balance sheet management, forming a foundational layer of India’s short-duration fixed-income market.
Treasury Bills have defined structural characteristics within India’s short-term government debt market:
Issued at a discount and redeemed at face value
Standard maturities of 91, 182, and 364 days
No periodic coupon payments
Tradable in the secondary market
Issued by the Government of India through RBI auctions
Allocated via competitive and non-competitive bidding mechanisms
Taken together, these features outline the operational framework of Treasury Bills and explain their role within short-term government financing and money market liquidity.
In India, Treasury Bills are issued in three standard maturity tenors:
These are short-duration instruments commonly used by banks and institutions for near-term liquidity management.
These carry a medium-term maturity within the T-Bill segment and are issued less frequently than 91-day bills.
These represent the longest maturity available among Treasury Bills and form part of annual short-term government borrowing.
Each maturity category differs only by tenure, with all T-Bills issued at a discount and redeemed at face value.
Treasury Bills operate through a discount-based issuance model, where returns are realised from the difference between the purchase price and the redemption amount at the end of the tenure.
The process typically follows these steps:
Issued at a discount
Treasury Bills are auctioned by the Reserve Bank of India at a price lower than their face value.
Purchase at the auctioned price
Investors acquire the T-Bill at this discounted amount through RBI auctions or secondary market transactions.
Held until maturity (or traded earlier)
The T-Bill may be held until maturity or sold in the secondary market before the maturity date.
Redeemed at face value
On maturity, the Government of India redeems the T-Bill at its full face value.
Return realised from the price difference
The investor’s return is the difference between the discounted purchase price and the redemption value. Because T-Bills carry sovereign backing, they are generally regarded as having negligible credit risk, though market price fluctuations may occur before maturity.
Example:
If a Treasury Bill with a face value of ₹1,00,000 is issued at ₹96,000, the ₹4,000 difference represents the return earned at maturity.
This structure reflects how Treasury Bills generate income without periodic interest payments, relying instead on the discount-to-redemption mechanism.
In India, Treasury Bills are held by banks, mutual funds, corporates, insurance companies, and retail participants accessing auctions or secondary markets through authorised intermediaries. Holdings across these segments reflect T-Bills’ role within institutional treasury operations and short-term cash management cycles.
Treasury Bills are issued by the Government of India through auctions conducted by the Reserve Bank of India. These auctions are typically held weekly for different maturities. Retail investors may participate through the non-competitive bidding route, which allows access without directly competing on yield.
A Treasury Bill calculator estimates returns by computing yield based on:
Purchase price
Face value
Maturity period
Such calculators are commonly used to compare yields across different T-Bill maturities.
Treasury Bills are commonly used within short-duration allocation frameworks due to their sovereign issuance, defined maturities, and predictable redemption structure. They are frequently incorporated into institutional liquidity management, temporary fund deployment, and low-volatility portfolio segments, particularly where capital preservation and timing certainty are prioritised.
Despite their sovereign backing, Treasury Bills have certain limitations:
Returns are typically lower than those of longer-duration or higher-risk instruments
Market prices may fluctuate before maturity due to interest rate movements
They are not designed for long-term capital growth
Returns are taxable as per applicable income tax rules
These factors influence how Treasury Bills are positioned within short-term financial planning and liquidity frameworks.
Suppose a 182-day Treasury Bill with a face value of ₹1,00,000 is issued at ₹95,500.
Return = ₹1,00,000 – ₹95,500 = ₹4,500
Yield = (4,500 ÷ 95,500) × 100 ≈ 4.71%
This example demonstrates how Treasury Bill returns arise from the difference between the discounted issue price and redemption value.
The treasury bill market in India plays a central role in short-term government financing and liquidity management, supporting cash flow requirements while enabling the Reserve Bank of India (RBI) to conduct monetary operations. T-Bills are actively traded in both primary auctions and the secondary market, forming a core segment of the country’s money market infrastructure.
T-Bill prices and yields are influenced by several interconnected factors:
RBI policy rates
Changes in policy rates affect short-term borrowing costs, which are reflected in T-Bill yields during auctions and secondary market trading.
Demand from banks and mutual funds
Institutional participation shapes auction outcomes, as banks and mutual funds regularly use T-Bills for liquidity deployment and balance sheet management.
System liquidity conditions
Surplus or tight liquidity in the banking system influences bidding behaviour, with excess liquidity generally putting downward pressure on yields and tighter conditions pushing yields higher.
Inflation expectations
Market expectations around inflation impact short-term rate outlooks, which in turn affect the pricing of Treasury Bills.
Together, these factors determine how Treasury Bills are priced across maturities, reinforcing their role as benchmark instruments within India’s short-term fixed-income market and supporting efficient transmission of monetary policy.
Treasury Bills operate as short-term government securities within India’s money market framework. Their structure, defined maturities, and sovereign issuance make them a commonly used instrument for liquidity management and short-duration capital deployment.
While returns are typically lower than those of longer-term instruments, Treasury Bills continue to serve an important role in risk management, temporary fund parking, and portfolio diversification across institutional and retail segments.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
A Treasury Bill is a short-term government security issued at a discount to its face value and redeemed at full value on maturity. The difference between the issue price and redemption value represents the return.
Treasury Bills are issued by the Government of India through auctions conducted by the Reserve Bank of India as part of its short-term borrowing programme.
Treasury Bills are purchased below face value and redeemed at par on maturity. Returns arise from the price difference rather than periodic interest payments.
Treasury Bills have maturities of less than one year, are issued at a discount, carry sovereign backing, and are actively traded in the money market.
Treasury Bills are characterised by government issuance, defined short maturities, and predictable redemption values. They are commonly used within liquidity management and short-duration allocation frameworks.
In India, Treasury Bills are issued with maturities of 91 days, 182 days, and 364 days.
A Treasury Bill calculator estimates yield based on the issue price, face value, and remaining maturity period.
No. Treasury Bills do not pay periodic interest. They are issued at a discount to their face value and redeemed at par on maturity, with the difference representing the return.
Treasury Bills in India are issued through auctions conducted by the Reserve Bank of India (RBI). Eligible participants, including institutions and retail investors, can access these auctions either directly through the RBI Retail Direct platform or via banks and authorised intermediaries, subject to prevailing regulatory procedures.
Treasury Bills are short-term instruments with maturities of up to one year and are issued at a discount without periodic interest payments. Treasury Bonds, on the other hand, are long-term government securities that typically carry fixed interest (coupon) payments and have maturities extending beyond one year.
The return on a Treasury Bill is calculated as the difference between its face value and the discounted purchase price. The yield can be expressed as:
Yield = (Face Value – Purchase Price) ÷ Purchase Price × 100
This represents the percentage return earned over the bill’s maturity period.
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