With central and state governments’ cash balances surging due to less spending and robust revenue collections, there has been a sharp drop in yields of treasury bills (T-bills) across tenures. The yield on 91-day T-bills fell to 6.55%, its lowest since January 2023, and is only 5 basis points above the Reserve Bank of India’s (RBI’s) key policy rate. The spread between the two is — the lowest since May 2022. Yields on 180-day and 364-day bills fell 5-6 basis points each.
As a result, the RBI has decided to cancel the T-Bill auction for the remaining two weeks in the quarter ending September for better cash management. On Thursday, the central bank cancelled the auction of two T-bills worth Rs 20,000 crore each, scheduled for this month.
“Cancelling T-Bills auction is just a part of better cash management strategy of the RBI,” a dealer with a primary dealership said. He also added that it denotes that revenue growth and revenue collection have been pretty good, leading to a huge pile up of cash surplus.
The adoption of better fiscal management practices, healthy tactics collections, and a build-up of cash by state governments have resulted in a spike in cash balances.
Additionally, the cash balances of governments with the central bank are likely to increase further anticipating higher goods and services tax (GST) collections, dealers said. The outflows on account of goods and services are expected to begin from September 20.
According to the government’s official statement, GST collections in August went up by 10% from the same period last year to Rs 1.75 lakh crore. So far in 2024, the total GST collection has been 10.% higher at Rs 9.13 lakh crore, as against Rs 8.29 trillion mopped up in the corresponding period of 2023.
The implementation of just-in-time cash management for expenditure on schemes, central sector schemes and centrally sponsored schemes, has led to the accumulation of large cash balances.
However, this cut in T-bill borrowings does not translate into any cut in the government borrowings for the Oct-Mar.