Context:

The central bank has announced steps to help states cope with the fallout of the covid19 pandemic, including allowing a higher borrowing limit under Ways and Means Advances (WMA).

About:

• Under Section 17(5) of the RBI Act, 1934, the RBI provides Ways and Means Advances (WMA) to the States banking with it to help them to tide over temporary mismatches in the cash flow of their receipts and payments.
• The WMA scheme was designed to meet temporary mismatches in the receipts and payments of the government.
• This facility can be availed by the government if it needs immediate cash from the RBI. The WMA is a loan facility from the RBI for 90 days.
• 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.
• WMA can also be facilitated by Central Government.
• According to RBI rules, the normal WMA limits are based on a three-year average of the state’s actual revenue and capital expenditure, and withdrawing beyond the limit is considered an overdraft.
• The interest rate on WMA/overdraft will be:
  • WMA: Repo Rate
  • Overdraft: Two percent above the Repo Rate.