Contents
Definition
A Treasury Bill (T-Bill) is a short-term, zero-coupon debt instrument issued by the Government of India (GoI) through the Reserve Bank of India as its debt management agent. T-Bills are sovereign-backed, GoI-issued obligations — the lowest-credit-risk rupee instrument available. They are issued at a discount to face value and redeemed at par on maturity — the difference is the investor's return. Three tenors are available: 91-day, 182-day, and 364-day T-Bills. Face value is ₹100 per unit. T-Bills are SLR-eligible and counted as approved securities for banks' statutory liquidity ratio maintenance. They are also used as the external benchmark for the EBLR (External Benchmark Lending Rate) system — the 91-day and 182-day T-Bill yields serve as RBI-designated reference benchmarks for floating-rate lending.
How They Are Issued and Traded
RBI auctions T-Bills through the E-Kuber system using a uniform price auction mechanism. Primary auctions occur on Wednesdays (91-day and 182-day) and alternating Wednesdays for 364-day bills, with settlement on the following Friday (T+2 basis). Eligible primary market participants include Scheduled Commercial Banks, Primary Dealers (PDs), state governments, and select institutional investors. Non-competitive bids (up to ₹2 crore per auction) are available for retail/small investors via RBI Retail Direct. Secondary market trading occurs on the NDS-OM (Negotiated Dealing System — Order Matching) platform. The notified amount and actual allotment are published on rbi.org.in. Retail investors can also access T-Bills through the RBI Retail Direct platform at rbiretaildirect.org.in.
Why It Matters for Investors
- Risk-free rate benchmark: The 91-day T-Bill yield is the closest proxy for the Indian risk-free rate, used in CAPM-based equity valuation models and as a benchmark for short-duration debt fund performance.
- Liquid fund comparisons: Liquid mutual funds (7-day to 91-day maturity) are benchmarked against the CRISIL Liquid Fund Index, which itself closely tracks 91-day T-Bill yields. Investors comparing liquid fund returns to T-Bills get a real measure of fund alpha.
- EBLR linkage: Floating-rate home loans and MSME loans linked to T-Bill benchmarks reprice quarterly — faster than MCLR. Monitoring T-Bill auction results forecasts upcoming loan rate changes.
- NRI applicability: NRIs can invest in T-Bills through NRO/NRE accounts via SEBI-registered brokers or RBI Retail Direct (with applicable FEMA compliances). Sovereign-backed, zero default risk.
Current Value + Recent History
As of Q1 2024, the 91-day T-Bill cut-off yield in primary auctions hovers around 6.85–6.95%, reflecting the current repo rate of 6.5% plus a liquidity/term premium. The 364-day T-Bill trades at approximately 7.0–7.1% — a modest upward slope reflecting 1-year rate expectations. During the 2020 easing cycle, 91-day T-Bill yields fell to as low as 3.2–3.4% (mid-2020) as RBI injected massive liquidity and cut repo to 4.0%. Post-2022 rate hikes, yields normalised to current levels. The spread between 91-day T-Bill and repo rate (the "T-Bill spread") serves as a real-time liquidity gauge — a tight spread (< 20 bps) indicates surplus system liquidity; a wide spread (> 50 bps) signals tightness.
Worked Example
Calculating T-Bill return and comparing to liquid fund:
- Purchase: 91-day T-Bill with face value ₹1,00,000 purchased at ₹98,300 (discount of ₹1,700).
- Return calculation: Discount = ₹1,700. Discount yield = (1,700 / 98,300) × (365/91) × 100 = 6.95% per annum.
- Liquid fund comparison: If a liquid fund returns 6.80% annualised (net of TER) over the same period, the T-Bill offers ~15 bps higher pre-tax return with zero credit risk. After indexation benefits in debt fund taxation (if held correctly), the comparison may tilt toward fund depending on tax slab.
- EBLR linkage example: A floating-rate MSME loan linked to 91-day T-Bill + 250 bps spread. If T-Bill auction cut-off rises from 6.70% to 6.90% in a quarter, borrower's rate rises from 9.20% to 9.40% at next repricing date.
See Also
- Open Market Operations (OMO)
- Statutory Liquidity Ratio (SLR)
- Repo Rate
- Short Duration and Liquid Fund Investing
- Reserve Bank of India
Primary Source
RBI — Treasury Bill Auction Results | RBI Retail Direct — T-Bill Access for Retail Investors
This glossary entry is for educational purposes only and does not constitute investment advice. T-Bills are sovereign-backed GoI-issued instruments but returns are subject to prevailing auction yields. MintByte Research is AMFI-registered (ARN-314872) and APMI-registered (APRN-01658). Past performance is not indicative of future returns.