Ways and means advances, Financial Management

WAYS AND MEANS ADVANCES (WMAs)

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
You are considering the purchase of some shares of PECO Inc. common stock which paid a dividend of $1.50 today. You expect the dividend to grow at the rate of 7% per year for the n

The Role of Merchant Banker The issuer appoints the Merchant Banker (or Investment Banker) to undertake the issue activity. A Merchant Banker performs multiple functions during

1. Analyse the company's capital structure and critically assess different types of financing options available to the company. Calculate the cost of these different types of finan

The director of capital budgeting for a firm has recognized two mutually exclusive projects, A and B, with the following expected net cash flows:

Following are the areas an analyst should consider while assessing the creditworthiness of an issuer. 1. Security Limitations: The bond indenture shoul

As you checked the Answer Key to Question 6 in the Mastery Check from this lesson you may have noted that each year's net cash flows are calculated by adding depreciation back to n

Second-Round Financing This is the introduction of further funding through original investors or new investors to enable a new organization to deal with finance growth or unexp

Determine Current ratio  or working capital ratio CA = Current assets/Current liabilities (times) Current ratio measures the short term solvency or liquidity; it demonstra

Q. Give subject matter of participation? Subject matter of participation by and large the workers interests in participation varies with the nature of issues' involved in parti

Question. 1 Using D to assess the interest rate risk of a financial institution's balance sheet Background: Point 1. A business is 'insolvent' when it has negative eq