The Ways And Means Advances (WMA) Scheme

Explanation :

• The Reserve Bank of India gives temporary loan facilities to the centre and state governments as a banker to government. This temporary loan facility is called Ways and Means Advances (WMA).
• The scheme for the Central Government was introduced on April 1, 1997, after putting an end to the four-decade old system of adhoc (temporary) Treasury Bills to finance the Central Government deficit.
• The WMA scheme is designed to meet temporary mismatches in the receipts and payments of the government.
• The government can avail of immediate cash from the RBI, if required.
• But it has to return the amount within 90 days.
• If the WMA exceeds 90 days, it would be treated as an overdraft.
• The interest rate on overdrafts would be 2 percent more than the repo rate.
• Further, the RBI provides an overdraft facility when the WMA limit is breached. The overdraft is not allowed beyond 10 consecutive working days.

Types of WMA

There are two types of Ways and Means Advances — normal and special.

• Special WMA or Special Drawing Facility is provided against the collateral of the government securities held by the state. After the state has exhausted the limit of SDF, it gets normal WMA. The interest rate for SDF is one percentage point less than the repo rate.
• The number of loans under normal WMA is based on a three-year average of actual revenue and capital expenditure of the state.