UPSC Prelims 2018 · Question 56 of 99
UPSC Prelims 2018 question on RBI Government Securities Management
- ExamUPSC CSE
- Year2018
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicMoney Market
- DifficultyMedium
- TypeStatement
Consider the following statements:
1. The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities.
2. Treasury Bills are issued by the Government of India and there are no treasury bills issued by the state governments.
3. Treasury bills are issued at a discount from par value.
Which of the statements given above is/are correct?
Show answer
Answer: C. 2 and 3 only
Verdict
Statements 2 and 3 are correct, so the answer is (c) 2 and 3 only.
Statement by statement
Statement 1 is INCORRECT. The Reserve Bank of India manages public debt and issues rupee denominated loans on behalf of both the Central Government and the State Governments, under powers derived from the RBI Act, managing State debt on the basis of separate agreements. It is therefore debt manager for both, not only for the Centre.
Statement 2 is CORRECT. Treasury bills are short term money market instruments issued by the Government of India, presently in three tenors of 91 days, 182 days and 364 days. State governments do not issue them.
Statement 3 is CORRECT. Treasury bills are zero coupon securities that pay no interest. They are issued at a discount and redeemed at face value, so a 91 day bill of 100 rupees face value may be issued at 98.20 and redeemed at 100, the difference being the investor's return.
Source
Reserve Bank of India frequently asked questions on government securities.
How to crack it
Statement 3 is the safest anchor, because zero coupon and issued at a discount is definitional for treasury bills. Since every option except (c) and (b) excludes statement 3, and (b) requires statement 1 to be wrong anyway, settling the RBI's role for States decides it. Remember that the RBI is banker and debt manager to both levels of government.