Ways and means advances, Financial Management


WMA is not a permanent source of financing government deficit. But, this is likely to provide greater autonomy to the RBI in conducting monetary policy. According to the agreement, the RBI will no longer monetize the fiscal deficit and the government should borrow from the market to finance the fiscal deficit. But, the RBI will extend the advances to the Central and State governments to tide over temporary or short-term finance requirements which needs to be repaid in three months. Drawals in excess of the WMAs limit will be allowed for a maximum of ten consecutive days. The RBI allows for three types of ways and means advances: the clean WMAs (unsecured), the secured WMAs (which are secured against central government securities) and the special WMAs which are allowed in exceptional circumstances against the pledge of government securities.

The system of WMAs broadly works as follows:

  • The limit of WMAs is decided in terms of mutual consultations between the RBI and the central government.
  • The interest charged up to the WMAs limit would be three percent less than the average implicit yield at the cut-off prices of 91-day T-bills in the previous quarter and for the amount in excess of WMAs limit, it is two percent more than the normal rate.
  • The interest rate is decided on, and can be altered by mutual agreement between the RBI and the government.

The outstanding balance of WMAs at the end of the year should be repaid by the central government (it should be brought down to zero). If the balance remains unpaid for more than two weeks after the end of year, the RBI converts the amount into dated securities at the market rate of interest.

If 75 percent of limit is utilized, the RBI should initiate a fresh flotation of central government securities.


Posted Date: 9/11/2012 3:46:31 AM | Location : United States

Related Discussions:- Ways and means advances, Assignment Help, Ask Question on Ways and means advances, Get Answer, Expert's Help, Ways and means advances Discussions

Write discussion on Ways and means advances
Your posts are moderated
Related Questions
Suggestion regarding credit limit. should it be approved or not, what should be the amount of credit limit that electronics give to booth plastics

Q. Explain Traditional Method of Measurement? Computation of yield to measure a financial asset's return is the simplest and oldest technique of measurement. Yield can be find

Q. Distinguish between Management Accounting and Financial Management with clear mention of basis of differences. How does the traditional financial manager differ from the mode

Now we can calculate the yield for each possible call or put date. In addition, we can also calculate the yield to maturity. The lowest yield of all these possibl

Market Value Ratios Price-Earnings Ratio P/E ratio shows how much investors are willing to pay for earnings per share of the company. Market-to-Bo

Relevance of Development of Money Market The development of the money market is important for the debt market especially through the process of liquidity. The money market prov

Suppose you have recently been contracted as a financial consultant to a London-based engineering company, Alpha Products Plc. The company uses three components as part of their pr

1. If Robinson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain. 2. Construct Robinson’s market va

ICQ's designed to: Identify possible areas of weakness. Discover existence of internal controls. Questions are framed to highlight situations where: NO su