On April 23, 2021, due to the prevalence of the COVID-19, The Reserve Bank of India (RBI) has informed the continuation of the existing interim Ways and Means Advances (WMA) limit of Rs 51,560 crore for all states and Union Territories(UTs) for 6 months i.e. up to September 30, 2021.
Key Points:
- Continuation of SDF: Both the state governments and UTs obtained Special Drawing Facility (SDF) will continue to be linked to their total investments in marketable securities issued by the Government of India, including the Auction Treasury Bills (ATBs).
- Eligibility for availing the SDF: The eligibility for availing SDF will be calculated by means of the total annual incremental investments in Consolidated Sinking Fund (CSF) and Guarantee Redemption Fund (GRF)(Unchanged). (CSF and GRF are reserve funds maintained by State Governments with RBI).
- Operating limit of SDF(Daily): It will be determined by applying a uniform hair cut of 5 per cent over the market value of securities.
- Interest rate:Interest rate on SDF, WMA and OD shall continue to be linked to the Policy rate of the Reserve Bank i.e., the Repo Rate. Interest will be charged for all the days the advance remains outstanding.The prevailing rates are retained as given below:
Scheme Limit Rate of Interest SDF If availed against net annual incremental investment in CSF and GRF Repo rate minus 2 per cent If availed against investment in G-sec/ ATBs Repo rate minus 1 per cent WMA If outstanding up to 3 months from the date of making the advance Repo rate If outstanding beyond three months from the date of making the advance Repo rate plus 1 per cent OD If availed up to 100 per cent of WMA limit Repo rate plus 2 per cent If exceeds 100 per cent of WMA limit Repo rate plus 5 per cent - RBI had revised the WMA Scheme of States and Union Territories (UTs) based on the recommendations of the Sudhir Shrivastava Chaired Advisory Committee on WMA to State Governments.
- The WMA limit arrived at by the Committee based on total expenditure of States/ UTs, works out to ₹47,010 crore.
What are WMAs?
- WMAs are temporary advances given by the RBI to the government to tide over any mismatch in receipts and payments.
- There are two types of Ways and Means Advances normal WMA and Special WMA or Special Drawing Facility
What is a Special Drawing Facility (SDF)?
It is available before the availing of WMA and is offered against the collateral of the government securities held by the state. The interest rate for SDF is 1% point less than the repo rate.
Recent Related News:
On April 01, 2020, India’s central bank, the Reserve Bank of India (RBI) in consultation with the Government of India (GoI), has hiked the limit of Ways and Means Advances (WMA) for the center to Rs 1.2 lakh crore for the first half of the financial year 2020-21(FY21), up from Rs 75,000 crore in the first half of FY20, and Rs 35,000 crore for the second half of 2019-20.
About Reserve Bank of India (RBI):
- It was established on the recommendation of the Hilton Young Commission.
- The First Governor of RBI was Sir Osborne Smith (1935 – 1937).
- The First Indian Governor of RBI was CD Deshmukh (1943 – 1949).
- Dr. Manmohan Singh is the only Prime Minister to have also served as the Governor of RBI ((1982 – 1985).
- The First women deputy Governor of RBI was KJ Udeshi.
