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RBI allows states to avail short-term borrowing relaxations for another 6 months

The relaxation under WMA limit, a short-term borrowing arrangement provided by the central bank to state governments to meet short-term expenditure needs, has been extended by another six months to 31 March 2021

Chitranjan Kumar | September 29, 2020 | Updated 22:19 IST
RBI allows states to avail short-term borrowing relaxations for another 6 months
The RBI has also extended the duration of overdraft (OD) regulations for a further period of 6 months till March 31, 2021

The Reserve Bank of India (RBI) on Tuesday extended the relaxation in Ways & Means Advances (WMA) limits of states for another six months to enable them to plan their market borrowings to meet revenue mismatches. Earlier in April, the central bank had hiked the borrowing limit of all states and union territories under the WMA facilities by 60 per cent to help them undertake COVID-19 containment and mitigation measures. WMAs are temporary liquidity support provided by the central bank to the government to meet short-term expenditure needs.

"With a view to provide greater comfort to state governments in undertaking COVID-19 containment and mitigation measures, and to enable them to plan their market borrowings, RBI had announced an increase in WMA limit of the States/UTs by 60 per cent over and above the level as on March 31, 2020," the RBI said in a press release.

Now the relaxation under WMA, a short-term borrowing arrangement between the RBI and central and state governments, will remain in effect for another six months till March 31, 2021. Earlier in April, the central bank had increased WMA limit from Rs 1.2 lakh crore (announced on March 31) to Rs 2 lakh crore to tide over the adverse situation arising from the outbreak of the COVID-19 pandemic.

Also Read: Coronavirus impact: RBI sharply hikes central govt's short-term borrowing limit to Rs 2 lakh crore

Besides, the central bank has also extended the duration of overdraft (OD) regulations for a further period of six months till March 31, 2021. In order to provide flexibility to state governments to tide over their cash flow mismatches, the OD regulations were relaxed, with effect from April 7, 2020, wherein they were allowed to be in overdraft continuously for 21 working days, from 14 days earlier. Adding to it, the number of overdraft days in a quarter was also raised to 50 working days from 36 working days.

Also Read: Allow cash flow-based lending for MSMEs: industry body to RBI

Both these relaxations are currently available till September 30, 2020.

"On a review, it has been decided to extend the above-mentioned measures announced on April 17, 2020 and April 7, 2020 with regard to increase in WMA Limits of States/UTs and OD regulations, respectively, for a further period of 6 months till March 31, 2021," RBI said.


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