Cash Management Bills (CMBs) are short term bills issued by central government to meet its immediate cash needs. The bills are issued by the RBI on behalf of the government. Hence the CMBs are short-term money market instruments that help the government to meet its temporary cash flow mismatches. Following are the features of CMBs.
CMBs have a maturity of less than 90 days.
The CMBs have the generic character of Treasury Bills as the CMBs are issued at a discount and redeemed at face value at maturity. For example, if the face value of a CMB is Rs 100, we can get the bill at Rs 97 and at the end of the maturity date, say 60 after days, we can get Rs 100. Here, there is no interest payment as the maturity period is so small. But the return for buying CMB is obtained in the form of a discount.
The tenure or maturity, notified amount (how much total CMBs to be issued) and date of issue of the CMBs depends upon the temporary cash requirement of the Government.
CMBs are eligible as SLR securities. Investment in CMBs is also recognized as an eligible investment in Government securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949.
CMBs are issued first on May 12, 2010. The purpose of the mechanism is to enable the government to get short term money. Another similar method for the government to get short term money is Ways and Means Advances (WMA). Under WMA, the RBI gives temporary loan facilities to the centre and state governments as a banker to government for upto 90 days.