<h2 class="ql-align-justify">Ways and Means Advances (WMA)</h2> Context: RBI increased the WMA limits of State governments and Union territories to ₹60,118 crore from ₹47,010 crore effective July 1. About&nbsp;<ul><li class="ql-align-justify">WMA are advances to central and state/UTs governments provided by RBI to meet temporary mismatches in the cash flows of receipts and payments, also available for the Union Government.&nbsp;</li><li class="ql-align-justify">Duration:&nbsp;</li><li class="ql-align-justify ql-indent-1">The advances are typically short-term, with a duration of up to 90 days.</li><li class="ql-align-justify ql-indent-1">If the amount is not returned within this period, it would be treated as an overdraft.</li><li class="ql-align-justify">WMA scheme was introduced on April 1, 1997.</li><li class="ql-align-justify">RBI Act, 1934 authorizes the central bank to lend to the Centre and state governments subject to their being repayable “not later than three months from the date of the making of the advance”.</li><li class="ql-align-justify">Number of loans under normal WMA is based on a three-year average of actual revenue and capital expenditure of the state.</li><li class="ql-align-justify">Interest rates on WMA are linked to Repo rate.</li></ul> Types:&nbsp;<ul><li class="ql-align-justify">Normal WMA:&nbsp;</li><li class="ql-align-justify ql-indent-1">A state/UT is provided with a special WMA initially and after its exhaustion, it gets a normal WMA.&nbsp;</li><li class="ql-align-justify ql-indent-1">Interest Rate = Repo Rate</li></ul> <ul><li class="ql-align-justify">Special WMA (now known as Special Drawing Facility (SDF)):&nbsp;</li><li class="ql-align-justify ql-indent-1">Special WMA has lower interest rate than Normal WMA.&nbsp;</li><li class="ql-align-justify ql-indent-1">Interest Rate = One percentage points less than repo rate</li></ul> Special Drawing Facility (SDF):&nbsp;<ul><li class="ql-align-justify">It is availed by State against the collateral of Consolidated Sinking Fund (CSF), Guarantee Redemption Fund (GRF), Auction Treasury Bills (ATBs), etc.&nbsp;</li><li class="ql-align-justify">CSF and GRF are reserve funds maintained by State with the RBI.&nbsp;</li></ul> Overdraft Facility:&nbsp;<ul><li class="ql-align-justify">It is provided whenever financial accommodation to a State exceeds its SDF and WMA limits.</li><li class="ql-align-justify">Generally, State Governments/UTs can avail overdraft on 14 consecutive days (relaxation can be provided by RBI).&nbsp;</li><li class="ql-align-justify">Interest Rate = 2 Percentage points more than the repo rate.</li></ul>