Tamil Nadu can now borrow ₹3,960 crore under the Ways and Means Advances (WMA) facility for State governments, after the Reserve Bank of India increased the limit by 60%.
WMA is a temporary loan facility provided by the RBI to States to enable them to tide over temporary mismatches in the cash flow of their revenue receipts and expenditure.
The tenure of the facility is three months, with a 21-day overdraft permitted. The rate of interest is 4.4% (the current repo rate) and 2% above the repo rate for overdraft under the facility.
Tamil Nadu’s WMA limit has now increased to ₹3,960 crore from the earlier limit of ₹2,475 crore. According to ICRA Ratings, the increased limit will mean that States can borrow about ₹51,600 crore under the WMA facility now. The increased limit will be available till September 2020.
According to data from the RBI, Tamil Nadu did not borrow under the WMA facility during 2019-2020. However, according to experts, given the current extraordinary situation when revenue collection has been hit due the lockdown and expenditure requirements have increased, Tamil Nadu might have to use the facility.
The doubling of ways and means limits of States from 30% announced by the RBI earlier, was one of the demands made by Chief Minister Edappadi Palaniswami. However, his request for the advances to be made interest free for the current financial year, 2020-21, did not come through.
“The higher WMA limit is expected to offer a short-term relief to States. It can temper the surge in issuance of State government bonds, known as State development loans, which in turn may result in interest rates on State borrowings softening from alarmingly high levels seen in the last few weeks,” said Jayanta Roy, senior vice-president at ICRA.
