Cash Management refers to the process of collection and management of cash inflow and outflow. It also includes the assessment of market liquidity, cash flows, and investments.

Meaning of Cash Management Bills

Cash Management Bills means short-term bills issued by the central bank of a country in consultation with the government of the country in order to match a temporary cash balance mismatch and provide emergency funding. The tenure of maturity of these bills ranges from a few days to three months. These are the most flexible monetary market instruments as they can be issued whenever needed. Hence, it allows the central bank to issue fewer long-term notes and have a lower cash balance.

Though the shorter maturity period leads to the overall interest expense being lower, the cash management bills tend to offer a higher yield than fixed maturity tenure bills.

Economies such as the United States issue cash management bills that have a maturity tenure ranging from a few days to even six months.

Cash Management Bills can be issued 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. Here participation of primary dealers is compulsory, like in the case of issued bonds or regularly scheduled treasury bills.

Cash Management Bills in India

In deliberation with the Reserve Bank of India (RBI), the Government of India issued a new short-term money market instrument- Cash Management Bills, to meet the temporary mismatch in the cash flow of the government. These bills are non-standard, with a maturity period of less than 91 days, and are discounted monetary market instruments.

The Cash Management bills are stated to have the generic character of treasury bills and will be subject to terms and conditions pre-specified while being sold.

Cash Management Bills were first issued on 12th May 2010. They were introduced to supplement short-term cash raising instruments like treasury bills and ways & means advances.

Difference Between Treasury Bills, Ways & Means Bills And Cash Management Bills

The ways & means advances and the treasury bills are all issued for a period of 91 days to 364 days and aids the government to borrow from the Reserve Bank of India.

The ways & means advances have the same rate of interest as the repo rates, while the treasury bills have a variety of interest rates. Hence, the government gets a way out of the high interest rate costs incurred when issuing the treasury bills or ways & means advances, as the cash management bills have a lower interest rate associated with them.

Features of Cash Management Bills

Following are the basic features of the Cash Management Bills introduced by the Reserve Bank of India:

  • As per the temporary requirement of cash by the government, the cash management billswill be issued, and the date of issue, maturity and the notified amount of the bills will depend accordingly. However, the tenure of these proposed bills will be less than 91 days.
  • Similar to the treasury bills, the cash management billsare discounted to the face value through auctions.
  • The cash management bills will be auctioned, and the announcement will be made by the Reserve Bank of India a day before the auction through a separate press release.
  • T+1 basis will be used for settlement of the auction.
  • The cash management bills will not be covered under the non-competitive bidding scheme that is there for treasury bills.
  • The cash management bills will be of tradeable nature and will qualify for the ready forward facility.
  • Investment in thecash management bills is recognised as a valid investment in banks for Statutory Liquidity Ratio (SLR) purposes.

With the introduction of cash management bills, the excess liquidity in the banking sector can be now transferred to the government by the Reserve Bank of India in a manageable form.

The inter-bank term-money market will also be deepened by these bills, thus, reducing the interest rate risks the banks face when borrowing for a short term.