Government to issue short-term instrument to meet cash shortfall

The central government has decided to issue Cash Management Bills, a new short-term money market instrument, to meet its temporary cash flow mismatches, the Reserve Bank of India (RBI) said in a statement yesterday.

These bills will be non-standard, discounted instruments issued for maturities less than 91 days, and will be similar to treasury bills, or those government papers that have a maturity period of less than a year.

Currently, the government borrows from RBI under a system called ways and means advances (WMA) to meet such mismatches.

 ''The Cash Management Bills will have the generic character of Treasury Bills and their sale will be subject to the terms and conditions specified in the General Notification on 31 March 1998 issued by the government of India and as amended from time to time,'' the RBI said.

''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,'' the statement added.

The proposed Bills will be issued at discount to the face value through auctions, as in the case of the Treasury Bills, and the announcement of the auction of the proposed Bills will be made by the RBI through separate press release to be issued one day prior to the date of auction.