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Economic Glossary

    Cash Management Bill

CMBs are short-term instruments normally issued by the Government to overcome temporary cash flow mismatches. However, the RBI is using them to modulate liquidity in the banking system.

The cash management bill (CMB) is the most flexible instrument for a Central Bank because it can be issued when needed, allowing the Central Bank to have lower cash balances and issue fewer long-term notes. CMBs tend to pay higher yields than bills with fixed maturities, but their shorter maturities lead to lower overall interest expense.

The Government of India, in consultation with the RBI, had decided to issue a new short-term instrument, known as Cash Management Bills, to meet the temporary cash flow mismatches of the Government. CMBs in India are non-standard, discounted instruments issued for maturities less than 91 days. CMBs have the generic character of Treasury Bills.

CMBs have the following features.

  1. The tenure, notified amount and date of issue of the proposed Cash Management Bills depends upon the temporary cash requirement of the Government. However, the tenure of the proposed Bills is less than 91 days.
  2. The Bills are issued at discount to the face value through auctions, as in the case of the Treasury Bills.
  3. The announcement of the auction of the Bills is be made by the Reserve Bank of India through separate Press Release issued one day prior to the date of auction.
  4. The settlement of the auction is on T+1 basis.
  5. The Non-Competitive Bidding Scheme for Treasury Bills is not extended to CMBs.

The Bills are tradable and qualify for ready forward facility. Investment in the proposed Bills is reckoned as an eligible investment in Government Securities by banks for SLR purpose.

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