Cash Management Bills (CMBs)

Cash Management Bills (CMBs) are important instruments issued by the central government. They are issued by the Reserve Bank of India (RBI). They are issued to meet immediate cash needs and manage temporary cash flow gaps.

Cash Management Bills (CMBs) will be helpful for UPSC IAS Exam preparation. GS Paper-3 Indian Economy.

Table of Content

• What are Cash Management Bills (CMBs)?
• History of Cash Management Bills (CMBs) in India
• Features of CMBs
• Conclusion
• Frequently Asked Questions (FAQs)

What are Cash Management Bills (CMBs)?

• Meaning: Cash Management Bills (CMBs) are short term instruments issued by the central government to address its immediate cash requirements.
• The CMBs bills are issued by the Reserve Bank of India (RBI) on behalf of the government.
• They are typically not sold on a regular basis because they are only offered when the government has a low cash balance. 
• They can be issued both in fungible form and non-fungible form.
• The fungible form of a cash management bill is when the maturity date coincides with the maturity of an already issued treasury bill. 
• These bills serve as short-term money market instruments.
• These bills assist the government in managing temporary cash flow gaps.
• The cash management bills have a lower interest rate associated with them as compared to ways & means advances, or treasury bills, which have higher costs of interest rate.
• The day of issue of CMBs depend on the temporary cash requirement of the government. 

History of Cash Management Bills (CMBs) in India

• The Government of India in collaboration with the Reserve Bank of India (RBI) introduced Cash Management Bills as a new short-term monetary instrument to address temporary cash flow mismatches.
• The first issuance of Cash Management Bills in India took place on May 12, 2010. The aim was to complement existing short-term cash-raising instruments such as treasury bills and ways & means advances.

Features of CMBs

• Cash Management Bills (CMBs) have a maturity period of less than 91 days.
• CMBs are issued at a discount and redeemed at face value upon maturity, similar to Treasury Bills.
• The discount serves as the return on investment, as there is no interest payment due to the short maturity period.
• The tenure or maturity, notified amount, and date of issue of CMBs are determined based on the temporary cash requirements of the Government.
• CMBs qualify as Statutory Liquidity Ratio (SLR) securities and CMBs can be considered eligible investments in Government securities by banks for SLR purposes under Section 24 of the Banking Regulation Act, 1949.
• T+1 basis is generally used for settlement of the auction.

Conclusion

CMBs were introduced in 2010. CMBs have a maturity period of less than 91 days. CMBs are issued at a discount and serve as short-term money market instruments. They complement existing cash-raising instruments and qualify as Statutory Liquidity Ratio (SLR) securities, providing eligible investments for banks under the Banking Regulation Act, 1949. CMBs is an effective method to control the money supply in the economy and helps serving government to control continue running its various welfare programs, without being hindered by any issues.

Ref: Source-1

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FAQs (Frequently Asked Questions)