The Hindu Business Line : RBI raises WMA limit

The rate of interest on normal WMA will be repo rate (currently 6.50 per cent) for period between one to 90 days and one per cent above the repo rate for periods beyond 90 days, according to an RBI release.

Special WMA

As for special WMA, there is no change in the existing scheme, except with regard to the rate of interest on such advances and investments of the states in Consolidated Sinking Fund (CSF)/Guarantee Redemption Fund (GRF).

Accordingly, the special WMA scheme will continue to be linked to the investments made by the State governments in Government of India securities (dated securities and treasury bills).

A uniform margin of five per cent will be applied on the market value of the securities for determining the operating limit of special WMA.

The States will have to avail themselves of special WMA limits first before seeking accommodation under the normal WMA limits. The rate of interest applicable to special WMA will be one per cent below repo rate as against one per cent below the bank rate as of now.

The daily special WMA entitlement of the State government will be determined on the basis of its net incremental investment in CSF/GRF on a year-on-year basis.

This incentive would, however, not be applicable to the outstanding balance of a State government under CSF/GRF.

Also, a State government will not be permitted to avail itself of special WMA under this provision if there is a decline in its outstanding CSF/GRF balance vis-à-vis the level in the corresponding previous period.

The present scheme of maintaining a minimum balance with the RBI will continue. There is no change in the amount of minimum balance to be maintained by the State governments.

Overdraft regulation

In respect of overdraft regulation, there is no change in the existing scheme, except in the case of interest charged thereon.

Accordingly, a State can be in overdraft for 14 consecutive working days. In case the overdraft continues in the state's account beyond 14 consecutive working days, the RBI and its agencies shall stop payments in respect of the State government concerned.

The existing norm of restricting overdraft to 100 per cent of the normal WMA limit will continue. If the overdraft exceeds this limit for five consecutive working days for the first time in a financial year, the RBI will advise the State to bring down the overdraft level within 100 per cent of the WMA limit.

If, however, such an irregularity occurs on a second or subsequent occasions in the financial year, the RBI will stop payments notwithstanding the provision that permits the state overdraft up to 14 days.

No State government will be allowed to be in overdraft for more than 36 working days in a quarter. If this is not adhered to, payments will be stopped irrespective of the above provisions.

The rates of interest on overdraft will be two per cent above the repo rate for overdraft up to 100 per cent of normal WMA limit and five per cent above the repo rate for overdraft exceeding 100 per cent of the normal WMA limit.

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