The Hindu Business Line : State Govts' investments in treasury bills rise

Overwhelming preference
Many States have gone for high yields in a bid to increase their non-tax revenues
States with cash surpluses, due to large central transfers, have parked their funds in T-Bills

Bangalore , Oct. 25

State Governments' investments in treasury bills (T-Bill) have increased since the beginning of this financial year by about Rs 6,000 crore.

Outstanding investments by States in T-Bills amounted to Rs 61,240 crore as on October 13, according to the Reserve Bank of India data. Bulk of the States' investments was in 14-day T-bills amounting to close to Rs 40,000 crore. The 14-day T-bills are issued exclusively to the State Governments for parking their temporary cash surpluses.

Yield on this short-term instrument at the beginning of this financial year (FY) was under five per cent. But yields on these T-bills have been on the ascent since the beginning of this FY. Currently, yield on the 14-day T-bill is about 6.3 per cent.

Treasury management

Some States though have also begun moving to the long-end of the yield curve as a sign of proactive treasury management. In fact, bankers said that some of the States were non-competitive bidders at the RBI's weekly T-bill auctions along with some of the corporates for 91-day T-bills.

This was largely on account of the higher yields available at the 91-day, 182 and 364-day spectrums.

Bankers said that among the more savvy States chasing high yields were the Western Indian states in a bid to increase their non-tax revenues. Yield on the 91-day T-bill was 6.65 per cent at last week's auctions and the 364-day bill was 6.95 per cent. This was also one of the reasons for ensuring the low weighted yields despite the high cut off yields at the auctions, since the bid prices quoted by the non-competitive bidders were higher than either primary dealers or the banks.

Cash surpluses

Bankers said that the cash surpluses with the States were mostly on account of the large central transfers, both plan and non-plan.

Since there was a lag between actual deployment of the resources, States have preferred to park the funds in the T-Bills as part of their cash management strategies.

In fact, most of the States are now switching to T-bills instead of deposits with public sector banks.

This shift from bank deposits where State Governments normally park surpluses, were largely due to better returns.

However, some of the States have also begun taking advantage of bulk deposit rates for parking their resources with the banks, though the overwhelming preference was for T-bills in view of the sovereign status.

The preference for T-Bills was also on account of the high liquidity of these financial instruments.

Consequently, some of the States during the last months had also resorted to parking some of the accelerated power development and reform programme resources in the T-Bills.

This was largely because of utilities' delays in finalising capital investments plans under the APDRP programmes.

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