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RBI increases WMA limit to Rs 1.2 lakh crore for the first half of FY21

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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 centre 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.RBI raises WMA limit for H1FY21Key Points:

i.Benefits: The increment will help state & central government to overtake the current mismatch in the cash flow of their receipts and payments & will step up expenditure in the social sector, including health and sanitation at the time of outbreak of the coronavirus (COVID-19) pandemic.

ii.Interest rate on the WMA: The interest rate on the WMA is the repo rate, which is currently at 4.40 % as per 7th Bi-monthly Monetary Policy Statement, 2019-20. The interest rate on the overdraft –OD (extension of monetary limit) is 2 % over the repo rate or 6.40 %.

iii.Centre’s plan: Out of the total gross borrowings of Rs 7.8 lakh crore in FY21, the Centre government has planned to borrow Rs 4.88 lakh crore, or 62.56 %, in the first half of the fiscal to mitigate the impact of coronavirus pandemic on the economy, as compared to 62.25 % done in FY 20.

In order to increase the investor’s base, the centre also decided to issue the debt exchange traded fund (ETF) consisting of government securities.

iv.The Budget 2020-21 proposed by Finance Minister Nirmala Sitharaman has decided that  the Centre’s net market borrowing including government securities (G-Secs) , treasury bills (T-bills) and post office life insurance fund at Rs 5.36 lakh crore.

What is WMA?
The RBI provides temporary loan to the centre & state governments as a banker to the government. This facility is called Ways and Means Advances (WMA) 7 it was introduced in the year1997. Under this facility, Centre and states can borrow money from RBI for a period of 90 days.

If the WMA exceeds the limit of 90 days, it would be treated as an overdraft (OD). The interest rate on overdrafts would be 2 % more than the repo rate.

Types of WMA: There are 2 types of WMA namely normal & Special WMA.

Special WMA / Special Drawing Facility (SDF):
It is available before 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.

Normal WMA:
It is available after the state government has exhausted the limit of SDF, it gets normal WMA. Under this facility, the number of loans offered based on a three-year average of actual revenue and capital expenditure of the state.

About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (BP Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra) & N S Vishwanathan ,who is due to retire on July 3,2020, has resigned on March 5,2020.