Basic Features & Tenets of CMBs

Basic Features & Tenets of CMBs

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Short-term bills known as Cash Management Bills (CMBs) are issued by the central government to meet its immediate cash requirements. The RBI issues the bills on the government's behalf. Thus, the CMBs allude to money market instruments having a short duration assisting the government to resolve the imbalances in the temporary cash-flow.. On May 12, 2010, the first CMBs are issued. The mechanism allows the government to obtain short-term funding. Ways and Means Advances (WMA) are another similar method by which the government can obtain short-term funding. As a banker to the government, the RBI provides the central and state governments with up to 90-day temporary loan facilities under WMA.

The Reserve Bank of India's Cash Management Bills have the following fundamental characteristics:

1. The cash management bills will be issued in response to the government's temporary cash requirement; the bills' issue date, maturity, and notified amount will be determined accordingly. However, the proposed bills' duration will be shorter than 91 days.

2. Like the depository charges, the money the executives billsare limited to the assumed worth through barters.

3. The Reserve Bank of India will announce the auction of the cash management bills in a separate press release one day prior to the auction.

4. T+1 premise will be utilized for settlement of the bartering.

5. The non-competitive bidding scheme for treasury bills will not apply to the cash management bills.

6. The bills for cash management will be tradeable and eligible for the ready forward facility.

7. For the purposes of calculating the Statutory Liquidity Ratio (SLR), investments in cash management bills are considered legitimate investments in banks.

8. The Reserve Bank of India can now transfer the excess liquidity in the banking sector to the government in a form that is manageable with the introduction of cash management bills.

The CMBs will also deepen the interbank term-money market, lowering the interest rate risks banks face when borrowing for a short period of time.