Cash Management Bills: Union Government raised 10000 crore rupees
Union Government on 10 November 2014 raised 10000 crore rupees from the market through cash management bills (CMBs).
On behalf of the government, RBI conducted the 42 day CMB auction and saved 1.75 percentage points on interest for the exchequer.
CMB is a rarely used instrument that was resorted to only when the exchequer faced a short-term liquidity mismatch.
Why government used CMB
Under the Ways and Means Advance (WMA) facility of the Reserve Bank of India (RBI), the government can borrow up to 20000 crore rupees till March 2015 to meet such short-term frictional cash shortfall at the repo rate.
If the government borrows anything above that limit, it will have to pay an interest of two percentage points above the repo rate i.e 10% given the current repo rate. However, if the government mobilizes funds through CMB, it usually pays a lower rate of interest.
The Government of India, in consultation with the Reserve Bank of India, decided to issue a new short-term instrument, known as Cash Management Bills, to meet the temporary cash flow mismatches of the Government.
The Cash Management Bills will be non-standard, discounted instruments issued for maturities less than 91 days.
The Cash Management Bills will have the generic character of Treasury Bills.
The Cash Management Bills will 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 proposed Bills will be less than 91 days.
b) The proposed 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 proposed 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 proposed Bills will be tradable and qualify for ready forward facility. Investment in the proposed 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.
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