Banking Awareness forms an important part of Bank exams. Study our Banking Awareness topics to excel in Bank exams. All about Treasury Bills (T-bills), Commercial Paper (CP) and Certificate of Deposit (CD). The points in red color are the most important for exams.

Comparison between Treasury Bills (T-bills), Commercial Paper (CP) and Certificate of Deposit (CD)

Click on the image to see a comparative study between T-bills, Commercial Paper (CP) and Certificate of Deposit (CD)

 

Treasury Bills (T-Bills)

Introductions: Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India.

Who can buy: T-Bills can be purchased by any one (including individuals).

Tenor/Maturity: Available in three tenor: 91 day, 182 day and 364 day.

Denomination: Minimum Rs 25,000 and its multiple thereon.

Interest Rate: T-Bills are zero coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at maturity.

Explanation: For example, a 91 day Treasury bill of ₹100/- (face value) may be issued at say ₹ 98.20, that is, at a discount of say, ₹1.80 and would be redeemed at the face value of ₹100/-.

• The bills will be transferable in terms of the Government Securities Act, 2006 and the Government Securities Regulations, 2007.

Cash Management Bills- You can understand CMBs as T-Bills with maturity less than 91 days.

• Government of India, in consultation with RBI introduced a new short-term instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government of India. The CMBs have the generic character of T-bills but are issued for maturities less than 91 days.

 

Commercial Papers

Introduction: ‘Commercial Paper’ (CP) is an unsecured money market instrument issued in the form of a promissory note.

Objective: To enable highly rated corporate borrowers and Primary Dealers to diversify their sources of short-term borrowings.

Who can Issue CP: Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs)

Eligibility Criteria for Company to issue CP:

A corporate would be eligible to issue CP provided –

• The tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore
• Company has been sanctioned working capital limit by bank/s or all-India financial institution/s; and
• The borrowal account of the company is classified as a Standard Asset by the financing bank/s/ institution/s.

Who can buy: Individuals, banking companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. can invest in CPs.

Maturity: Minimum 7 days to 1 year.

Denomination: Minimum Rs 5 lakh or multiple thereof.

Interest Rate: CP will be issued at a discount to face value as may be determined by the issuer.

 

Certificate of Deposit

Introduction: Certificate of Deposit (CD) is a negotiable money market instrument and issued against funds deposited at a bank or other eligible financial institution for a specified time period.

Who can issue CDs: CDs can be issued by

• scheduled commercial banks {excluding Regional Rural Banks and Local Area Banks}; and
• select All-India Financial Institutions (FIs) that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI.

Who can buy/invest in CDs: CDs can be issued to individuals, corporations, companies (including banks and PDs), trusts, funds, associations, etc. Non-Resident Indians (NRIs) may also subscribe to CDs, but only on non-repatriable basis

Tenor/Maturity:

• When Issued by Banks- 7 days to 1 year
• When Issued by Financial Institutions (FIs): 1 year to 3 years

Denomination: Minimum amount of a CD should be Rs.1 lakh and its multiple thereon.

Interest Rate: CDs may be issued at a discount on face value. Banks / FIs are also allowed to issue CDs on floating rate basis

• Banks / FIs cannot grant loans against CDs. Furthermore, they cannot buy-back their own CDs before maturity.

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