Reserve Bank of India (RBI) in consultation with Central Government has decided to set limits for Ways and Means Advances (WMA) for first half of financial year 2019-20 (April 2019 to September 2019) at Rs 75000 crore. The interest rate on WMA will be Repo Rate and overdraft will be 2% above Repo Rate.
Ways and Means Advances (WMA)
- It is temporary loan facility provided by RBI to centre and state governments to meet temporary mismatches in the receipts and payments.
- It was introduced in 1997 to replace four-decade old system of adhoc (temporary) Treasury Bills to finance fiscal deficit of Central Government.
- This facility can be availed by central or state governments if they need immediate cash from RBI.
- However, WMA has to be vacated after 90 days and interest rate levied on it for is currently charged at repo rate.
- RBI has flexibility to revise WMA limit at any time, in consultation with Central Government, taking into consideration the prevailing circumstances.
- RBI also provides overdraft facility when WMA limit is breached, but it is not allowed beyond 10 consecutive working days. The interest rate on overdrafts is 2% more than repo rate.