Distinction: CMBs & T-Bills

Distinction: CMBs & T-Bills

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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. CMBs have the features listed below.

Under Open Market Operations, the Reserve Bank of India (RBI) conducted a transaction involving the simultaneous purchase and sale of government securities. The sum was for 10,000 crores in light of the common current and developing liquidity economic situations in April 2020. A comparable activity was first led in December 2019. The RBI operation, like the American operation Twist, was carried out through Open Market Operations by selling short-term securities and buying long-term securities to lower long-term interest rates.

1. The maturity of CMBs is less than 91 days. Because they are issued at a discount and redeemed at face value at maturity, CMBs resemble Treasury Bills in general. For instance, if a CMB has a face value of Rs 100, we can purchase it for Rs 97 and receive Rs 100 at the maturity date, say 60 days later. Due to the short maturity period, no interest is paid here. However, purchasing CMB results in a discount, which is the return on investment.

2. The duration or maturity, notified amount (the total number of CMBs to be issued), and date of issue of the CMBs are determined by the Government's temporary cash requirements.

3. As SLR securities, CMBs are eligible. Within the 1949 Banking Regulation Act – Section 24, CMBs investments are considered eligible investments within securities of the government by banks for the purposes of SLR.

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.

What distinguishes CMBs from Treasury Bills? - Distinction among CMBs and Depository bills is that CMBs are given for under 90 days though depository bills are issue for over 90 days (multi day and 364-day depository bills).