Previous Year Question
Consider the following statements:
The Reserve Bank of India manages and services Government of India securities, but not any State Government securities.
Treasury Bills are issued by the Government of India and there are no Treasury Bills issued by the State Governments.
Treasury Bill offers 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
Correct Answer: C
Detailed Solution
Statement 1 is incorrect.
The RBI does not manage only Central Government securities. It manages the public debt of the Central Government and those State Governments that enter into the required agreements with it.
The RBI’s major public-debt-management activities include:
conducting auctions of Central and State Government securities;
managing issuance, interest payments and repayment of principal;
maintaining records relating to government securities;
advising the Central and State Governments on their borrowing programmes; and
facilitating the orderly development of the government-securities market.
State Governments generally mobilise long-term market borrowing through State Development Loans (SDLs). The RBI also manages the auction and debt servicing of these securities. Therefore, Statement 1 is incorrect.
Statement 2 is correct.
Treasury Bills are short-term debt instruments of the Central Government. The RBI auctions them on behalf of the Government of India.
Regular Treasury Bills in India are issued for the following maturities:
91 days;
182 days; and
364 days.
State Governments do not issue Treasury Bills. They may use Ways and Means Advances and other RBI arrangements for short-term cash requirements, while their long-term market borrowing is primarily conducted through SDLs.
Statement 3 is correct.
Treasury Bills are zero-coupon securities. They do not carry a separate periodic interest or coupon payment.
They are issued below their face value—that is, at a discount—and redeemed at their full face value upon maturity. The difference between the issue price and face value constitutes the investor’s return.
For example, if a Treasury Bill having a face value of ₹100 is issued for ₹97 and redeemed for ₹100, the difference of ₹3 is the investor’s return.