Source says govt mulled CMBs but chose WMA Apr

Informist, Wednesday, May 3, 2023

By Aaryan Khanna

NEW DELHI – The government mulled issuing cash management bills early in the current financial year, but higher cost of borrowing from the market made it opt for ways and means advances, a finance ministry official said.

The government faced a cash crunch early in the year due to routine expenses for salary payments, the official said. According to data published by the Reserve Bank of India, the government had dipped into ways and means advances in the first three weeks of April, with advances peaking at 1.22 trln rupees as on Apr 7.

"For five-six days, we had thought of issuing cash management bills, but the market would have demanded something similar to where the Treasury bill yields were," the official told Informist. "We just chose to save money."

The RBI offers the Centre ways and means advances at the repo rate, currently at 6.50%, up to a limit of 1.50 trln rupees. The shortest tenure 91-day T-bill drew a cut-off of 6.92% at the auction on Apr 5.

CMBs are short-term debt instruments issued for periods under 91 days and used to smoothen temporary cash mismatches. They function much like T-bills, discounted at issuance and tradable in the secondary market.

The government had last used the ways and mean advances facility for eight days in April last year, to the tune of 400 bln rupees at its peak, the official said.

It had last issued CMBs three years back. On May 28, 2020, during the nationwide lockdown after the outbreak of the COVID-19 pandemic, the government issued 84-day CMBs worth 800 bln rupees. End

Edited by Avishek Dutta

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