RBI issues new FY12 WMA limits for govt

Mumbai: RBI issued fresh limits for the federal government to borrow from the bank under Weighs and Means Advances (WMA) for the financial year 2011-12 starting April.

The Reserve Bank of India (RBI) said the maximum the government can borrow under WMA is 300 billion rupees for April 1 to April 20 and 450 billion rupees for the period of April 21 to June 30.

Earlier, the government's WMA limit was 300 billion rupees for the first half ending September 30.

It added, the government can further borrow 300 billion rupees between July 1 to September 30 and another 100 billion rupees for October 1 to March 31, 2012.

The government usually borrows from the central bank under WMA when it does not have enough funds with itself and needs to spend in the economy.

The RBI increased the WMA limit so that the government does not have to issue dated securities to fund its overdraft. This is a positive development for the bonds market as it will lead to increased liquidity without fresh borrowing, said a head of treasury at a foreign bank.

The government has been borrowing from the RBI under WMA since the first two weeks of April. During the week ending April 15, the central government borrowed 506.07 billion rupees, exceeding its first-half borrowing limit.

The RBI also said that the government can raise funds via fresh market borrowing in case it utilises 75 percent of the WMA limit.

The government has already announced 200 billion rupees of fresh market loans through cash management bills this month.

This is the maximum that the government can raise as per the budget announcement through cash management bills. So, there will not be any further such bill issued, said another dealer at a foreign bank.

The government has to repay the loans borrowed under WMA at the repo rate, which is 6.75 percent.

In case, if the government overshoots the limit, it has to repay the additional amount at 2 percent above the repo rate.

Source: Financial Express