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Treasury Bill

Treasury bills, also known as T-bills, are short term money market instruments. The RBI  curb liquidity shortfalls on behalf of the government . It is a promissory note with a guarantee of payment at a later date. The funds collected are usually used for short term requirements of the government. It is also used to reduce the overall fiscal deficit of the country.

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 Treasury bills or T-bills have zero-coupon rates, i.e. no interest is earned on them. Individuals can purchase T-bills at a discount to the face/value. Later, they are redeemed at a nominal value, thereby allowing the investors to earn the difference. For example, an individual purchase a 91-day T-bill which has a face value of Rs.100, which is discounted at Rs.95. At the time of maturity, the T-bill holder gets Rs.100, thus resulting in a profit of Rs.5 for the individual. Therefore, it is an essential monetary instrument that the Reserve Bank of India uses. It helps RBI to regulate the total money supply in the economy as well as raising funds.