Ways and Means Advances

The RBI announced a 60% increase in WMA limit over the March levels for state governments to enable COVID-19 containment and mitigation efforts and plan their market borrowings.

About WMA

Ways and Means Advances or WMA is a mechanism used by RBI to help states overcome temporary mismatches in their receipts and payments. It is a facility for central governments and the state governments banking with it to borrow from the RBI. It is provided for under section 17(5) of RBI Act, 1934 and is repayable not later than 3 months from the date of making the advance.

Interest Rate

The RBI charges an interest on the WMA lent to the governments. This interest rate on the advance is the repo rate i.e. rate at which RBI lends short term money to banks. The state governments are now allowed to draw money above their WMA limits. This will add 2 percentage point on such overdraft. Hence an interest rate of 6.4% will be charged.

Conditions

The WMA limit for the centre has been fixed at 1,20,000 crore INR for the April to September period. The WMA limit for state governments has been increased to 51,560 crore INR. The higher limit is to be valid till the end of September. Earlier, RBI increased the period for which states can overdraft from 36 to 50 working days in a quarter.