 Under section 5 of Indian Negotiable

Instrument Act a bill means “An instrument in

writing containing an unconditional order,
signed by marker, directing a certain person
to pay a certain sum of money only to, or
order of a certain person, or to the bearer of
instrument.”
 It must be in writing.
 It must contain an order to pay.
 Unconditional order.
 It must be signed by drawer.
 Parties to bill: drawer, drawee & payee.
 Sum payable must be certain.
 Payment must be in money.
 It must be payable on demand or otherwise.
 Requires acceptance.
 Must be stamped.
 Self liquidating instrument.
 Drawn for short period.
 Bills are generally of two types:
a) Commercial Bills
b) Treasury Bills: these bills are issued
by central government for short period loans
and are sold by Reserve Bank of India on
behalf of the govt.
 A. According to time
(a)Demand Bill or Sight Bill: a bill of
exchange which is payable on demand or at
sight.
(b)Time Bill or Usance Bill: a bill of
exchange payable after the expiry of a fixed
period is called a time bill or usance bill.
 B. According to place
(a) Inland Bill: A bill of exchange which is
drawn and payable in same country.
(b) Foreign Bill: A bill of exchange which is
drawn in a foreign country and is payable in a
foreign country.
*Bill in sets. Foreign bills are generally
drawn in sets of two or three in order to avoid
the risk of loss in transit.
 C. According to Objective or Usage
(a) Trade Bill: A bill of exchange drawn in
respect of trade transaction drawn by seller on
buyer in respect of payment of price of goods
sold.
(b) Accommodation Bill: A bill which is
drawn or endorsed without receiving any value
thereof.
 These bills are drawn to raise loans.
 They are drawn to accommodate another
person and are not genuine bills.
 D.From viewpoint of payment or
according to receiver
(a) Bearer Bill: A bill of exchange which is
payable to any person who presents it for
payment.
(b) Order Bill: A bill which is payable to a
certain person named in the bill or his order.
Not payable to bearer.
 Commercial bill market is an important
source of short term funds for trade and
industry. It provides liquidity and
activates the money market. Bill market
is essential for the development of
money market.
1. Written verification of Debt.
2. Negotiable instrument
3. Exact date of payment
4. Discounting facility
5. Easy transfer of money
6. Credit facility
7. Facilitates foreign trade
8. Financial help
9. Liquidity
10. Easy control of the central bank
From the operations point of view, the bill
market can be classified into two
categories:

 Discount market
 Acceptance market
The discount market refers to a market place where
short-term instruments such as commercial bills
or treasury bills are discounted by financial
intermediaries such as commercial banks.

In U.K, there are specialized institutions called

discount houses which specialize only in the field
of discounting bills and papers.

Before 1988, the RBI helped the commercial banks

in their liquidity management by providing them
rediscounting of bills facility so that banks get
abundance liquidity in times of liquidity shortages.

But with the setting up of DFHI, discounting or

rediscounting facilities are now being provided by
the DFHI.
Raymond P. kent, in his book “Money and Banking” has
states that banker’s acceptance is “a draft drawn by an
individual or firm upon a bank and accepted by the
bank whereby it is ordered to pay to the order of a
designated party or to bearer a certain sum of money
at a specified time in future.”

We should like to draw a distinction between a banker’s

acceptance and a cheque. A banker’s acceptance is
payable at a specified future date whereas a cheque is
payable on demand. Banker’s acceptances can be easily
discounted in the money market because they carry the
signature of the bankers.

In the Indian Money Market these have no significance

because there is no development of the acceptance
market.
A well-developed bill market of any country is characterized by the
following features:
1. There is a practice of borrowing against commercial bills in that
country.
2. There is continuous and quite large supply of bills in such a
market.
3. Commercial bank provide credit to their customers on discounting
of these bills.
4. The market offers facilities to rediscount that bills.
5. The central bank of the country is willing is rediscount these bills
readily throughout the year.
6. Bill market provides facilities for acceptance of bills at a low cost.
7. A large number of brokers and dealers in bills function to help the
smooth functioning of the bill market.
The reasons for the poor development or the
shortcomings of the Indian bills market are as
below:
 Preference for cash credit
 Lack of uniform practices
 Stamp duty
 Absence of secondary market
 Limited discounting and rediscounting services
 Difficulty in determining genuineness of bills
 Velocity of circulation of bills .
OPERATIONS OF TB
MARKET IN INDIA
1. Government of India issues three types of
TB through auctions, namely, 91 days, 182
days and 364 days.
2. There are no TB issued by State
Government.
3. TB are available for a minimum amount of
₹25,000 and its multiples of ₹25,000.
4. TB are issued at a discount and are
redeemed at par.
5. TB are also issued under the MARKET
STABILISATION SCHEME (MSS)
6. While 91 day TB are auctioned
every week on Wednesday
7. 182 day and 364 day TB are
auctioned every alternate week on
Wednesdays.
8. RBI announces the exact date of
auction, the amount to be auctioned
and payment dates by issuing press
release prior to every auction.
9. TB auctions are held on the
NEGOTIATED DEALING SYSTEM (NDS)
IMPORTANCE, BENEFITS OR
ADVANTAGES OF TB
1.Source of Short-Term
Funds
2.Cheap Source of Finance
3.Safety
4.Liquid Instrument
5. Ideal Short-Term
Investment
6. Eligible Securities for
Statutory Liquidity
Requirement
7. Tool of Monetary Policy
8. Used as a Hedging
Instrument
LIMITATIONS OR
DEMERITS OF
1.Low yield TB
2.Lesser number of
competitive bids
3.Not much of active
trading
The importance of a good bill market
scheme was recognised by the RBI in
1952, when it introduced the bill
market scheme.

Since then, a number of measures

have been taken to promote the Bill
Market.
RBI introduced the bill market scheme by
undertaking to provide funds to
commercial banks against trade bills
within prescribed limits.
The scheme became popular with
commercial banks, especially during the
Busy season.
The scheme failed to serve the purpose
beyond refinance to commercial banks.
The reason was lack of sufficient number
A committee headed by M. Narsimham went
into the question of developing a genuine bill
market.
On the recommendations of the Committee a
NEW Bill Market Scheme was introduced in
1970.
It was essential for making bank rate an
effective methods of monetary control.
After introduction of the scheme, RBI has
been encouraging use of Bills as a source of
Finance by imposing charges on alternatives
methods like CASH CREDIT.
Headed by R. Jilani.
Also recommended that steps should be
taken to promote bill culture to a greater
extent respective to both purchase and sales.
Efforts should be made to persuade Govt.
departments, public sector undertakings and
large industrial units to accept bills drawn on
them.
The RBI discourages large use of cash credit.
The RBI set up DFHI jointly with the Public sector
banks and all India financial institutions.
With the objective of promoting Bill market in India.
It provides ready market for commercial banks.
It also acts as a specialised money market
intermediary for trading in money market
instruments.
RBI provides REFINANCE facility to DFHI.
5.RE-DISCOUNTING OF BILLS:
The RBI permitted the license scheduled
commercial banks to discount bills with
some financial institutions like LIC, GIC
and UTI.
The discounting procedures were also
simplified by dispensing with actual
lodging of bills irrespective of face value
below Rs 10 lakhs.
The minimum amount of bills prescribed
at Rs 5000 under the scheme was also
withdrawn.
 6. DERIVATIVE USANCE
PROMISSORY NOTE (DUPN) :
For reducing the physical movement of
paper and to facilitate multiple
rediscounting, the RBI introduced an
instrument called DUPN.
These DUPNs are sold to investors in
convenient lots of maturities ranging
from 15 days to 90 days on the basis of
genuine trade bills discounted by
banks.
7.REMISSION OF STAMP
DUTY:
The Govt. of India also announced the
remission of stamp duty on bills drawn
on or in favour of a commercial bank or
a cooperative bank
Payable not more than Three months
after date or sight.
DUPNs were also exempted from
payment of stamp duty.
8. DELINKING INTEREST
RATES :
The RBI delinked interest rates
applicable on discounting of bills from
prime lending rates of banks.
It gave commercial banks the freedom
to charge market determined interest
rates on bills.
Treasury bills market refers to the market where
treasury bills are bought and sold.
A treasury bill is a short-term govt. paper or a
promissory note issued by the central govt.
The duration of these bills does not exceed one year.
And no fixed rate of interest is payable.
Treasury bills are purely finance bills as they do not
arise out of any trade transactions.
Thus these are different from commercial bills.
The purpose of issuing treasury bills is generally to
meet the temporary govt. requirements of FUNDS.
Treasury bills are short term borrowing
instruments of the Central govt.
Treasury bills are safest money market
instruments.
Treasury bills are different from commercial bills.
Treasury bills are purely finance bills and do not
arise out of any trade transactions.
Treasury bills are issued only by Central Govt.
through the RBI.
 Treasury bills are available both in primary as
well as secondary market.
Treasury bills are sold through a process of
Bidding at auctions.
Treasury bills are zero risk instruments, the
returns on these instruments is not very
attractive.
Treasury bills are issued at discount, i.e., at a
price less than the face value. The govt. pays the
specific amount (face value) on maturity of the
bill.
 In India, treasury bills are
basically of two types :

(a) Ordinary or Regular.

(b) Adhoc known as Adhocs.

These are issued to the public or other
financial institutions through a process of
auction or bidding for meeting the short term
financial requirements of the Central Govt.
The bids are invited for 91 days, 182 days,
364 days, treasury bills.
These bills are easily marketable and can be
bought and sold from the secondary market
also.
The ordinary treasury bills can also be
discounted with RBI.
These are always issued in favour of RBI with
a view to replenish Govt’s cash balances by
employing temporary surpluses of state govt.
and semi-state govt.
These bills are not sold through tender or
auction.
They are purchased by the RBI who is
authorised issue currency notes against
them.
 Three categories :
91 days treasury bills.
182 days treasury bills.
364 days treasury bills.
The following are the major participants of the treasury
bills market :-
Reserve Bank of India.
State Bank of India and other Commercial Banks.
State Govts.
Financial institutions such as LIC, UTI, NABARD etc.
Discount and Finance House of India (DFHI).
Public.
Provident funds.
Dealers.