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All About Treasury Bills ,Certificate of Deposit (CD) , Commercial Paper (CP)

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Treasury Bills (TBs)

 T-Bills are the most important and used mean for the government to acquire money from the market, to maintain its money requirements.

 Introduced in 1987

⇒  Issued By → RBI ( On behalf of the government ).

  Type of debenture.

⇒  Doesn’t require any collateral as security

Five types of the TBs in due course of time:
(a) 14-day (Intermediate TBs) –discontinued in 2001.
(b) 14-day (Auctionable TBs) – discontinued in 2001.
(c) 91-day TBs
(d) 182-day TBs
(e) 364-day TBs

⇒  Issued on discount basis and can be redeemed at par.

Doesn’t bear any interest.

 

Certificate of Deposit (CD)

CDs are certificates issued by banks or other financial institutions to the general public, to raise short-term resources

⇒  Is a negotiable money market instrument.

⇒  Issued in dematerialised form 

⇒ Issuer – Scheduled Commercial Banks (excluding RRBs), permit-granted Financial Institutions (FIs)
    Issued to – individuals, corporations, companies (including banks), trusts, etc.

⇒ Bank CDs (7 days – 1 year) and FI CDs (1 – 3 years) 

⇒ Minimum amount – Rs.1 lakh, i.e., the minimum deposit that could be accepted from a single subscriber should not be less than Rs.1 lakh, and in multiples of Rs. 1 lakh 

⇒  Issued at a discount on face value. 

⇒  Are freely transferable .

 

Commercial Paper (CP)

Commercial Paper is a ‘money market instrument’ under Section 45W of the Reserve Bank of India Act. Commercial Paper’ (CP) is an unsecured money market instrument issued in the form of a promissory note.

⇒ Eligible Issuers:

  1. Companies, including Non-Banking Finance Companies (NBFCs) and All India Financial Institutions (AIFIs), are eligible to issue CPs
  2. Other entities like co-operative societies/unions, government entities, trusts, limited liability partnerships and any other body corporate having presence in India with a net worth of ₹ 100 crore or higher
  3. Any other entity specifically permitted by the Reserve Bank of India (RBI).

⇒ Eligible Investors:

  1. All residents, and non-residents permitted to invest in CPs under Foreign Exchange Management Act (FEMA), 1999 are eligible to invest in CPs; however, no person can invest in CPs issued by related parties either in the primary or secondary market.
  2. Investment by regulated financial sector entities will be subject to such conditions as the concerned regulator may impose.

⇒ CP shall be issued in the form of a promissory note 

⇒  Held in a dematerialized form

⇒ Maturity – 7 days to 1 year

⇒ Minimum size – Minimum amount of CP is Rs. 5 lakh and multiple thereof

⇒  CP shall be issued at a discount to face value.

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