RBI cranks up WMA of states by 9.77%

The Reserve Bank of India (RBI) today announced an increase in the aggregate normal ways & means advances of state governments by 9.77 per cent for the fiscal year beginning April 1, 2005.

The new limit for state governments will be Rs 8,935 crore as against the present limit of Rs 8,140 crore, representing an increase of Rs 795 crore or about 9.77 per cent.

According to the revised limits and norms on the ways and means advances to state governments released by the RBI today, "The maximum number of days that a state can be in overdraft is 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 concerned state government."

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, siad the RBI.

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. Currently the bank rate is pegged at 6 per cent.

The rate of interest charged on normal WMA is the bank rate for the period of 1 to 90 days and one per cent above the bank rate for the period beyond 90 days.

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 Reserve Bank 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 Reserve Bank will stop payments, said the press release.