Consider the following statements: 1. The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities. 2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the state Governments. 3. Treasury bills offer are issued at a discount from the par value. Which of the statements given above is/are correct?
Contents8
- A1 and 2 only
- B3 only
- C2 and 3 only
- D1, 2 and 3
Show answer
Answer: (C) 2 and 3 only
Correct Answer: (c) 2 and 3 only
Statement 1 is WRONG:
RBI manages government securities for BOTH the Central Government AND State Governments.
It is the debt manager for both levels of government, not just the Centre.
The claim that RBI doesn't manage State Government securities is false.
Statement 2 is CORRECT:
Treasury Bills are short-term borrowing instruments issued only by the Central Government (not by State Governments).
They are sold by RBI on behalf of the government.
They are available for a minimum amount of Rs. 25,000 and in multiples thereof.
They come in three tenors: 91 days, 182 days, and 364 days.
Statement 3 is CORRECT:
Treasury Bills are issued at a discount to their face value.
For example, you might buy a Rs. 100 treasury bill for Rs. 97.
When it matures, you get Rs. 100.
The Rs. 3 difference is your return.
This is why they are called 'zero coupon securities' — they don't pay any periodic interest; the return comes from the discount.
REMEMBER:
RBI manages debt for BOTH Centre and States (Statement 1 wrong).
Treasury Bills = issued only by Centre (not States), short-term, issued at discount, minimum Rs. 25,000.
They are like buying something at a lower price and getting the full price back later.
Treasury Bills are the primary short-term borrowing instrument of the Government of India, available in 91-day, 182-day, and 364-day maturities with a minimum investment of Rs. 25,000.
RBI acts as debt manager for both Central and State governments, handling issuance and servicing of securities for all government levels in India.
The question tests whether students can distinguish between Central vs State government borrowing powers and understand the discount-based pricing mechanism of treasury bills.
Treasury Bills (T-Bills)
Indian Economy Treasury bills discount par value
Treasury Bills: Features, Tenors & UPSC Facts
T-Bills are short-term borrowing instruments issued only by Central Government, not by States
Available in 91, 182, and 364 days maturity periods
Issued at discount to face value - you buy for ₹97, get ₹100 at maturity
Minimum investment ₹25,000 and in multiples thereof
Called zero coupon securities - no periodic interest, return from discount only
Treasury Bills are the government's primary short-term borrowing tool. Unlike bonds that pay regular interest, T-Bills work on a simple principle: buy cheap, get full value later.
Sold by RBI on behalf of Central Government
No periodic interest payments - entire return comes from the discount
Highly liquid and considered risk-free investments
T-Bills vs Other Government Securities
Feature | Treasury Bills | Government Bonds | State Government Securities |
|---|---|---|---|
Issuer | Central Govt only | Central Govt | State Governments |
Maturity | 91/182/364 days | 2-40 years | 5-20 years typically |
Interest Payment | Zero coupon (discount) | Regular coupon payments | Regular coupon payments |
Minimum Investment | ₹25,000 | ₹10,000 typically | Varies |
RBI Management | Yes - sold on behalf | Yes - manages | Yes - manages |
How the discount mechanism works: If you buy a ₹1,00,000 T-Bill at 6% annual discount rate for 91 days, you pay approximately ₹98,500. After 91 days, you receive the full ₹1,00,000. The ₹1,500 difference is your return.
Trap: Statement 2 tests if you think States can issue T-Bills - they cannot, only Central Government
Trap: 'Discount from par value' doesn't mean T-Bills are cheap - it's the mechanism of earning return
Confusion: Zero coupon doesn't mean zero return - return comes from discount, not periodic interest
Remember: RBI sells T-Bills but doesn't issue them - Central Government is the actual issuer
RBI's Debt Management Role
Indian Economy Reserve Bank of India Government of India Securities State Government Securities
RBI as Debt Manager: Centre & State Securities
RBI manages and services securities for both Central and State Governments, not just Centre
Acts as banker to government - maintains accounts, conducts auctions, manages redemptions
Sells T-Bills and G-Secs through primary auctions on behalf of governments
RBI wears multiple hats in government debt management. As the banker to government, it handles the complete lifecycle of government securities - from issuance to redemption.
RBI's Debt Management Functions
Function | For Central Government | For State Governments |
|---|---|---|
Account Management | Yes - maintains accounts | Yes - maintains accounts |
Securities Issuance | Yes - conducts auctions | Yes - conducts auctions |
Interest Payments | Yes - processes payments | Yes - processes payments |
Redemption Management | Yes - handles maturity | Yes - handles maturity |
Registry Services | Yes - maintains records | Yes - maintains records |
Market Making | Yes - supports liquidity | Yes - supports liquidity |
Key Debt Management Services
Primary market operations: Conducts auctions for fresh issuances of G-Secs and T-Bills
Secondary market support: Provides liquidity through Open Market Operations (OMO)
Registry and settlement: Maintains ownership records and handles settlements
Payment services: Processes interest payments and principal redemptions on due dates
Major Trap: Statement 1 claims RBI manages only Central Govt securities - FALSE, it manages both Centre and State
Confusion: Don't mix RBI's debt management role with its monetary policy role - these are separate functions
Remember: RBI is agent, not owner - it manages debt on behalf of governments, doesn't own the securities
Government Securities Classification
Indian Economy
Government Securities: Central vs State, Short vs Long-term
Central G-Secs: Include T-Bills (short-term) and G-Bonds (long-term)
State G-Secs: Only long-term bonds, no short-term instruments like T-Bills
All government securities are managed and serviced by RBI regardless of issuer
Government Securities Matrix
Instrument Type | Central Government | State Governments | Maturity Period | Interest Type |
|---|---|---|---|---|
Treasury Bills | Yes (91/182/364 days) | No - Cannot issue | Short-term | Zero coupon (discount) |
Government Bonds | Yes (2-40 years) | Yes (typically 5-20 years) | Long-term | Fixed coupon (periodic) |
Floating Rate Bonds | Yes - FRBs available | Limited issuances | Medium to long-term | Variable coupon |
Inflation Indexed Bonds | Yes - IIBs available | No - Rare/None | Long-term | Inflation linked |
Government Securities Ecosystem
# Government Securities (G-Secs)
## By Issuer
- Central Government Securities
- State Government Securities
- Union Territory Securities
## By Maturity
- Money Market (T-Bills < 1 year)
- Capital Market (Bonds > 1 year)
- Medium-term (2-5 years)
- Long-term (10+ years)
## By Interest Type
- Zero Coupon (T-Bills)
- Fixed Coupon (Regular bonds)
- Floating Rate
- Inflation Indexed
## Market Structure
- Primary Market (RBI auctions)
- Secondary Market (NDS-OM)
- Retail Direct (RBI portal)
- Gilt Mutual FundsKey Distinction: Only Central Government can issue T-Bills, States issue only long-term bonds
RBI Role Trap: RBI manages both Central and State securities - don't think it's Centre-only
Maturity Confusion: T-Bills are always less than 1 year, G-Bonds are more than 1 year