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RBI extends States’ Ways and Means credit
Why is it in news?
- The Reserve Bank of India (RBI) decided to continue with the existing interim Ways and Means Advances (WMA) scheme up to September 30.
- The decision was taken amid the prevalence of COVID-19.
- The Ways and Means Advances (WMA) scheme limit would be of Rs. 51,560 crore.
Ways and Means Advances (WMA):
- It is a facility for both the Centre and states to borrow from the RBI.
- These borrowings are meant purely to help governments to tide over temporary mismatches in cash flows of their receipts and expenditures.
- The RBI Act, 1934 authorises the central bank to lend to the Centre and state governments subject to their being repayable “not later than three months from the date of the making of the advance”.
- The interest rate on WMA is the RBI’s repo rate.
- The governments are, however, allowed to draw amounts in excess of their WMA limits. The interest on such overdraft is 2 percentage points above the repo rate.
- No state can run an overdraft with the RBI for more than a certain period.
Source: The Hindu.