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 bills 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
Explanation
Statement 1 is incorrect
- The Reserve Bank of India manages and services Government of India Securities as well as State Government Securities. In terms of Sec. 21A (1) (b) of the Reserve Bank of India Act, 1934, the RBI may, by agreement with any State Government undertake the management of the public debt of that State.
Statement 2 is correct
- The Central Government issues both treasury bills and bonds or dated securities, while the State Governments issue only bonds or dated securities, which are called State Development Loans (SDLs).
Statement 3 is correct
- Treasury bills (T-bills) are short- term debt instruments with tenures of 91 days, 182 days and 364 days. These are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. These bills come with a sovereign guarantee from the government.
- “Treasury bills are also called zero-coupon bonds because there is no explicit rate of interest mentioned for these bonds. Instead, the investors can buy T-bills at a discount to the face value. At maturity, the investor receives the T-bill’s par (face) value, thereby earning the difference.
- For instance, someone buys a 91-day T-bill with a face value of Rs 100 at the discounted price of Rs 98. At the time of maturity, the person earns Rs 2 as profit on a treasury bill with a par(face) value of Rs 100. Rs 2 would be the yield/return earned by the individual on the treasury bill.
