Treasury Bill
A Treasury Bill (T-Bill) is a short-term, zero-coupon government security issued by the Government of India through the RBI with maturities of 91 days, 182 days, or 364 days, sold at a discount and redeemed at face value at maturity.
Treasury Bills are the purest expression of short-term sovereign borrowing in India. Unlike dated government securities that pay periodic coupons, T-Bills are issued at a discount to their face value and redeemed at par on maturity. The difference between the issue price and the redemption value represents the return to the investor, implicitly priced by the yield-to-maturity at the time of auction. As a result, T-Bills do not require a coupon payment mechanism and are simpler to administer and trade.
The three tenors — 91-day, 182-day, and 364-day — serve different purposes. The 91-day T-Bill yield is a widely tracked money market reference rate and is used as an external benchmark for certain categories of floating-rate loans. The 364-day T-Bill is considered the boundary between the money market and the bond market, and its yield is closely watched as a proxy for short-term sovereign risk. T-Bills are auctioned every week by the RBI, typically on Wednesdays, with settlement on the following Friday.
T-Bills are the primary instrument for SLR compliance in the short-duration bucket and are extensively used by banks, mutual funds, and insurance companies for short-term liquidity management. Liquid mutual funds — a popular parking vehicle for corporate treasuries and retail investors — hold significant T-Bill exposures given their high credit quality and near-zero price sensitivity to interest rate changes. The RBI also uses T-Bills in repos and reverse repos under the LAF, accepting them as eligible collateral.
For retail investors, direct T-Bill access was limited until the RBI Retail Direct scheme opened the primary market. Prior to that, the primary route was through liquid or overnight mutual funds or bank fixed deposits. T-Bills offer yields that are usually slightly below comparable-maturity bank FDs because of their sovereign status and high liquidity — investors pay a premium for safety and marketability.
It is a misconception that T-Bills always yield less than fixed deposits of the same tenure. During periods of tight liquidity, short-term T-Bill yields have spiked to match or exceed bank deposit rates as banks bid aggressively to secure short-term funding. Monitoring the T-Bill yield curve relative to FD rates gives investors and analysts a useful read on system liquidity conditions and the RBI's effective policy stance in the money market.