RBI in consultation with Union Government on 1 April 2014 capped the Ways and Means Advances (WMA) limits for the first half of the new financial year 2014-15 (April 2014-Sep 2014) at 35000 crore rupees.
This notification of Reserve Bank of India (RBI) is aimed at triggering fresh flotation of market loans when the government utilises 75 percent of the WMA limit. The second half of the limit would be fixed in September 2014.
The interest rate on WMA/overdraft will be based on
a) WMA: Repo Rate
b) Overdraft: Two percent above the Repo Rate
Under the notification of the WMA limit, the Reserve Bank had retained the flexibility for revision of the limits at any time in consultation of the government. The flexibility would be used in consideration of the prevailing circumstances.
As per the notification, the government will have to maintain a minimum balance of not less than 100 crore rupees with RBI on Fridays, on the date of closure of government’s financial year and on 30 June i.e. the closure of the annual accounts of the RBI and not less than 10 crore rupees on other days.
The overdrafts beyond 10 consecutive working days will not be allowed on the basis of agreement of 26 March 1997 between the Union Government and RBI. WMA is used by the government to manage its short-term liquidity that arises during the interregnum of its planned market borrowing.