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What is Ways and Means Advances (WMA)?

Reserve Bank of India (RBI) has recently announced the Ways and Means Advances (WMA) limit for the Government of India. So, what is WMA?

What is Ways and Means Advances (WMA)?

Ways and Means Advances (WMA) is a collateral free clean advance availed by the Central and State Governments from RBI, to tide over temporary mismatches in the receipts and payments.

Section 17(5) of the Reserve Bank of India Act, 1934 empowers RBI to grant WMA to Central and State Governments, as and when required by them.

What is Special WMA / Special Drawing Facility (SDF)?

In addition to WMA, State Governments are also eligible for a Special Drawing Facility (SDF), which is granted against collateral of Government Securities held by the State Governments. 

SDF availed by State Governments / UTs is linked to the quantum of their investments in marketable securities issued by the Government of India, including Auction Treasury Bills (ATBs). 

(Updated on June 28, 2024)

Based on the recommendations made by the Working Group constituted by RBI on Consolidated Sinking Fund (CSF) and Guarantee Redemption Fund (GRF), the maximum limit of SDF that can be availed by the States / UTs against the investments held under CSF/ GRF shall be 50% of the lower of –

  • Outstanding balance of the funds as on the last date of the 2nd preceding quarter.
  • The current balance held in CSF/ GRF. 

For investments held in ATBs, the maximum limit of SDF shall be 50% of the lower of –

  • Outstanding balance in ATBs (91 / 182 / 364 days) as on the last date of the 2nd preceding quarter.
  • The current ATB balance.

State Governments have to exhaust the SDF limit before availing WMA.

What is Overdraft (OD)?

If the Central Government borrows over and above the WMA limit, it amounts to Overdraft (OD). 

When the advances to the State Governments exceed their SDF and WMA limits, overdraft (OD) facility is triggered.

How long can State Governments be in Overdraft?

State Governments / UTs can avail OD on 14 consecutive days and can be in OD for a maximum number of 36 days in a quarter.

If the OD exceeds 100% of the WMA limit for five consecutive working days for the first time in a financial year, RBI will advise the State to bring down the OD level within the 100% of WMA limit. If such irregularity occurs on a second / subsequent occasion in the financial year, RBI will stop payments.

What are the limits for WMA?

(Updated on October 02, 2024)

The WMA limit for Central Government for the second half of the financial year 2024-25 (October 2024 to March 2025) will be ₹50,000 crore. RBI may trigger fresh floatation of market loans when the Government of India utilises 75% of the WMA limit. 

(Updated on June 28, 2024)

The aggregate WMA limit for State Governments / UTs will be ₹60,118 crore (earlier ₹47,010 crore) effective from July 01, 2024.

What are the interest rates on WMA and OD for Central Government?

The interest rates on WMA and OD for Central Government are –

  • WMA – Repo Rate
  • OD – Repo Rate (+) 2% 

What are the interest rates on SDF, WMA and OD for State Governments / UTs?

Scheme Limit Rate of Interest
SDF If availed against net annual incremental investment in CSF and GRF Repo rate (-) 2%
If availed against investment in G-sec / ATBs Repo rate (-) 1%
WMA If outstanding up to 3 months from the date of making the advance Repo rate
If outstanding beyond 3 months from the date of making the advance Repo rate (+) 1%
OD If availed up to 100% of WMA limit Repo rate (+) 2%
If it exceeds 100% of WMA limit Repo rate (+) 5%


References

Reserve Bank of India. (2018, January 15). 'Functions and Workings of RBI'. Retrieved from https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RWF15012018_FCD40172EE58946BAA647A765DC942BD5.PDF

Reserve Bank of India. (2022, April 01). 'Review of Ways and Means Advances Scheme of State Governments / UTs'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=53499

Reserve Bank of India. (2024, June 28). 'Review of Ways and Means Advances Scheme for State Governments/UTs'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=58187

Reserve Bank of India. (2024, September 26). 'WMA Limit for Government of India for October 2024 – March 2025'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=58764


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