RBI raises WMA bar for states

The Reserve Bank of India (RBI) has raised the limit of normal ways-and-means advances (WMA) for state governments by 13.53 per cent to Rs 8,140 from Rs 7,170 crore.

The new ceiling, which will come into effect from April 1, takes into account the average revenue receipts of the states during the financial years 2000-01 to 2002-03.

For the first time, the central bank has linked investments made by the state governments in the government of India securities under a special WMA scheme.

A lower and uniform margin of five per cent is being applied on the market value of the government securities for determining the operating limit of special WMA.

The states will have to avail of the special WMA funds first before seeking accommodation under the normal WMA. The rate of interest applicable to special WMA is one per cent below the bank rate, which is 6 per cent now.

The interest on loans under normal WMA will be the bank rate for periods up to 90 days and one per cent above the bank rate for longer durations.

A state can run an overdraft for a maximum of 14 consecutive working days, up from 10 days this year. If the overdraft runs beyond this period, the RBI can stop payments.

The minimum normal WMA limit is Rs 50 crore for any state. The present scheme of maintaining minimum balance with the RBI continues.

There is no change in the amount of minimum balance to be maintained by the state governments. The existing norm of restricting overdraft to 100 per cent of the normal WMA limit continues.

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 the 100 per cent of WMA limit.

If, however, such irregularity occurs on a second or subsequent occasion in the financial year, the apex bank will stop payments notwithstanding the provision which permits the state overdraft up to 14 days.

An RBI release said no state 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," it said.

The rate of interest on overdraft will be three per cent above the bank rate for overdraft up to 100 per cent of normal WMA limit and six per cent above the bank rate for overdraft exceeding 100 per cent of the normal WMA limit.