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Treasury bills: tenors, discount pricing and yield
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Treasury bills (T-bills) are short-term money market instruments issued by the Government of India, through the RBI, to meet temporary cash needs. They have no interest coupon. Instead, they are issued at a discount and redeemed at face value, and the difference is the investor's return. They are the safest rupee instrument, since the government backs repayment.
Tenors
| T-bill | Maturity |
|---|---|
| 91-day | About three months |
| 182-day | About six months |
| 364-day | About one year |
The RBI holds auctions on a published calendar, with the 91-day bills auctioned more frequently than the longer ones. Government may also issue cash management bills (CMBs) with maturity under 91 days to cover very short gaps. Banks, mutual funds, insurers and individuals (through the RBI's Retail Direct platform) can invest.
Worked example (illustrative price)
An investor buys a 91-day T-bill with face value ₹100 at a price of ₹98.50.
- Gain = 100 − 98.50 = ₹1.50 over 91 days
- Return for the period = 1.50 ÷ 98.50 = 1.52%
- Annualised (simple) = 1.52% × 365 ÷ 91 = about 6.1%
The same ₹100 face value at a lower price means a higher yield, and a higher price means a lower yield. Yield moves opposite to price.
Why T-bills matter
- Liquidity tool. Banks use them to park spare money and they count as SLR assets.
- Benchmark. The 91-day and 182-day yields are among the allowed benchmarks for EBLR loans.
- Government financing. They fund short-term mismatches in the budget; the longer-term borrowing uses government securities.
- Policy link. The RBI's open market operations sometimes involve T-bills as well.
How bank exams ask about it
Questions test the three tenors, the discount-pricing idea ("issued at a discount, redeemed at par"), that they carry no coupon, and who issues them. You may also be asked to find yield from a price. Another favourite: T-bills are part of the money market (up to one year), while dated government securities are part of the capital market. Study them with the other markets in banking awareness.
Where to check
The RBI publishes auction results and the issuance calendar at rbi.org.in.
Frequently asked questions
Are T-bills risk-free?
They carry no default risk because the government issues them, but their price can move if you sell before maturity.
Do state governments issue T-bills?
No. State governments borrow through state development loans, which are longer-term securities.
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