On 23rd July 2013 RBI announced an auction of 28 days and 56 days Government of India Cash Management Bills to be held on the 25th July 2013. The total notified amount for the auction is Rs 6,000 crores. The Auction of both the securities will be conducted using “Multiple Price Auction”.
The cut offs on these bills are likely to come over 11% given the 91 day T-Bill cut off of 11% that came in the T-Bill auction held on the 24th of July.
What are Cash Management Bills?
Cash Management Bills (CMBs) are short term instrument, which are issued by the Central Bank to meet the temporary cash flow mismatch of the Government. It is the most flexible instrument with the Central Bank as it can be issued as and when required. CMBs tend to pay higher yields than bonds, but their shorter maturities lead to lower overall interest expense.
CMBs in India are non-standard, discounted instruments issued for maturities less than 91 days. CMB’s have the generic character of Treasury Bills.
The Cash Management Bills have the following features.
a) The tenure, notified amount and date of issue of the proposed Cash Management Bills will depend upon the temporary cash requirement of the Government. However, the tenure of the Bills will be less than 91 days.
b) The Bills will be issued at discount to the face value through auctions, as in the case of the Treasury Bills.
c) The announcement of the auction of the Bills will be made by the Reserve Bank of India through separate Press Release to be issued one day prior to the date of auction.
d) The settlement of the auction will be on T+1 basis.
e) The Non-Competitive Bidding Scheme for Treasury Bills will not be extended to the Cash Management Bills.
f) The Bills will be tradable and will qualify for ready forward facility. Investment in the Bills will be reckoned as an eligible investment in Government Securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949.