RBI keeps ‘Ways and Means Advances' to States at last year's level

The Reserve Bank of India has pegged the aggregate normal Ways and Means Advances (WMA) limit for State governments at Rs 10,240 crore for 2012-13.

The WMA limits for States, inclusive of the Union Territory of Puducherry, are unchanged from the last year's limits, said the central bank in a statement.

The RBI provides WMA facility to States banking with it to help them to tide over temporary mismatches in the cash flow of their receipts and payments.

A State entrusts its banking business — including payments, receipts, collection, remittance of money, management of public debt and issue of new loans — to the RBI by voluntarily entering into an agreement with the RBI.

Ways and Means advances are repayable in each case not later than three months from the date of making that advance. There are two types of WMA — normal and special. While normal WMA are clean advances, special WMA are secured advances provided against the pledge of Government of India dated securities.

“States repay their Ways and Means Advances by issuing bonds (State Development Loans),” said Mr N. S. Venkatesh, Chief General Manager (Treasury), IDBI Bank.

Any amount drawn by a State in excess of WMA is an overdraft. No State is allowed to run an overdraft with the RBI for more than 10 continuous working days. In case an overdraft appears in the State's account and remains beyond 10 continuous working days, the RBI and its agencies stop payments on behalf of the State.

At present, the interest rate charged on WMA and overdrafts are the Bank Rate (9.50 per cent) and the Bank Rate plus two percentage points (11.50 per cent), respectively.