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What are Cash Management Bills (CMBs)?

Governments raise / borrow funds by issuing government securities to finance a variety of projects and activities.

What is Government Security (G-Sec)?

Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. 

G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.

What are the types of G-Secs?

Government securityTermIssued by
Treasury Bills (T-bills)Short-termCentral Government
Cash Management Bills (CMBs)Short-termCentral Government
Bonds or Dated G-SecsLong-termCentral Government
State Development Loans (SDLs)Long-termState Governments

What are Cash Management Bills (CMBs)?

In 2010, Government of India, in consultation with Reserve Bank of India (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. 

What are the features of CMBs?

  • CMBs have the generic character of T-bills but are issued for maturities less than 91 days.
  • CMBs are issued at a discount and redeemed at face value on maturity. For example, CMB of ₹100/- (face value) issued at ₹ 98.20, that is, at a discount of ₹1.80 and redeemed at the face value of ₹100/-. 
  • CMBs are tradable and qualify for ready forward facility.
  • Investment in CMBs is reckoned as an eligible investment for SLR purpose.

Auction and Settlement of CMBs

  • Bids can be places by investors under Competitive Bidding. Non-competitive bidding scheme has not been extended to CMBs.
  • The minimum bid amount for CMBs is ₹10,000 and in multiples thereof.
  • Settlement for the CMBs auctioned is made on T+1 day i.e. on the working day following the trade day. On the settlement date, the fund accounts of the participants are debited by their respective consideration amounts and their securities accounts are credited with the amount of securities allotted to them. 


References

Reserve Bank of India. (2020, April 01). 'Government Securities Market in India – A Primer'. Retrieved from https://www.rbi.org.in/Scripts/FAQView.aspx?Id=79


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