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Most State governments have been running a tight ship, with their expenditure much higher than their revenue, resulting in large deficits and borrowing. But interestingly, many States have also been increasing their holding of central government treasury bills. They held ₹65,912 crore worth of treasury bills towards the end of February 2024. This increased to ₹1,17,356 crore by February 2025, marking an increase of 78 per cent.
According to the Reserve Bank of India (RBI), treasury bills are short term debt instruments issued by the Government of India in three tenors — 91 days, 182 day and 364 days. These are ideal for parking money for short durations as the risk is minimal here due to sovereign guarantee. As a result of this increase, State governments held 20.11 per cent of total treasury bill issuances in December 2024. The share has more than doubled from 9.26 per cent in December 2023.
State governments have also brought dated central government securities with maturity ranging between 5 and 40 years. These are long-term investments. The investments of States in these securities too registered an increase from ₹567 crore in February 2024 to ₹20,802 crore in February 2025. But most of these purchases were made by Odisha.
Which States bought treasury bills?
Data from RBI indicates that Karnataka held the largest amount of treasury bills in February 2025, at ₹29,966 crore. Uttar Pradesh comes next with investment of ₹25,000 crore and followed by Bihar with ₹20,000 crore. It is well documented that most states went slow with their capex spends in FY25 due to the Lok Sabha and numerous State elections. As policy making hit a logjam, States appear to be holding more cash, which is being parked in the treasury securities for the short term.
Odisha is the only State which also invested in dated securities worth ₹20,802 crore. This indicates the comfortable fiscal position of the State. The State had revenue surplus of almost ₹27,000 crore in FY25.
Karnataka had the highest holding of treasury securities in February 2024 as well at ₹26,193 crore. It was followed by Odisha, Rajasthan and Gujarat.
Why treasury bills?
The increase in treasury securities held by States could indicate two things. One, they are planning to spend on capital or other expenditure over a period and therefore are holding surplus funds. These are being deployed in treasury securities.
Two, States are getting better at treasury operations. Instead of letting money idle in the bank, they are deploying it in short-term government securities which gives them good rate of interest. States including Uttar Pradesh, Bihar and Chhattisgarh recorded a sharp improvement in their treasury security holdings this year.
Published on May 6, 2025
This article first appeared on The Hindu Business Line
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