Q. Consider the following statements:

  1. The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities.
  2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
  3. Treasury bills offer are issued at a discount from the par value.

Which of the statements given above is/are correct?

  • 1 and 2 only
  • 3 only
  • 2 and 3 only
  • 1, 2 and 3

Answer: (c) 2 and 3 only

Notes:
  • Government security (G-Sec) is a tradeable instrument issued by the central government or state governments. It acknowledges the government’s debt obligations.
  • A G-Sec is a type of debt instrument issued by the government to borrow money from the public to finance its Fiscal Deficit.
    • A debt instrument is a financial instrument that represents a contractual obligation by the issuer to pay the holder a fixed amount of money, known as the principal or face value, on a specified date.
  • The G-Secs issuances are managed by the RBI, who on behalf of the Centre, regularly conducts G-Sec auctions every Friday.
    • State Government transactions are carried out by RBI in terms of the agreement entered into with the State Governments.
  • Such securities are short-term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91-day, 182 day and 364 day) or long-term (usually called Government bonds or dated securities with an original maturity of one year or more).
  • In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Government issue only bonds or dated securities, which are called the State Development Loans (SDLs).
  • G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.
    • Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a means of borrowing funds.
  • The RBI conducts (Open Market Operations) OMOs for sale or purchase of G-secs to adjust money supply conditions.
    • The RBI sells g-secs to remove liquidity from the system and buys back g-secs to infuse liquidity into the system.
Treasury bills:
  • They are short-term debt instruments issued by the Central government.
    • State Government don’t issue treasury bills.
    • Treasury bills were first issued in India in 1917. They are issued via auctions conducted by the Reserve Bank of India (RBI) at regular intervals.
  • T-Bills are money market instruments.
  • Treasury bills play a vital role in cash management of the Government.
  • Being risk-free, their yields at varied maturities serve as short term benchmarks and help pricing varied floating-rate products in the market.
  • Tenure: These are presently issued in three tenors, namely, 91 day, 182 day and 364 day.
  • Treasury bills are issued at a discount and redeemed at the face value at maturity.
  • 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.