Development of the Market
Until 1950s, T-Bills were issued by both the Central and State Governments and from 1950s, it is only the Central Government that is issuing Treasury bills. Up to 1965, the mode of issue of T-bills to the public were through bi-weekly auctions or tenders. In 1965, the concept of ‘intermediate' T-bills were introduced and were sold for few years. According to this mode, T-bills had a maturity of 91 days and the rates were fixed by the RBI. The day succeeding the day of the usual weekly auction till the day preceding the next auction, was fixed for receiving the tenders for the next auction. The mode of issuing T-bills has changed from 12th July, 1965. Instead of inviting tenders, the T-bills were made available throughout the week at specified rates from time to time. This change in issuance has facilitated an increase in selling of T-bills (as the commercial banks were investing their short-term surpluses in these instruments). As the government raised its finances by issuing ad hoc T-bills to RBI, which is technically a short-term source, but, in practice, it is long-term in nature. In the sense, the ad hoc treasury bills are notionally discharged and renewed on maturity. Therefore, finance raised by the government in this form is technically short-term finance, but in reality ends as a long-term finance.