State’s market borrowings to reach Rs15,000cr during first half
THIRUVANANTHAPURAM: The Reserve Bank of India (RBI) has raised the limit for Ways and Means Advances (WMA) for Kerala by about 37 per cent, from Rs1,683 crore to Rs2,300 crore, effective from July 1, 2024.
WMAs are short-term borrowing facilities provided by RBI to state governments, and the tenure of such borrowings can go up to three months.
“Based on the recommendations made by the Group constituted by RBI and consisting of select state Finance Secretaries, and taking into account the expenditure data of the states for the recent years, it has been decided to revise the WMA limits of the State Governments/ UTs, effective from July 01, 2024,” an RBI statement said.
The revised aggregate WMA limit for state governments/Union Territories (UTs) will be Rs60,118 crore as against the existing limit of Rs47,010 crore, representing a 27.88 per cent increase.
Crucial for Kerala
The increase in the WMA limit can indeed be very crucial for a state like Kerala, especially when it is facing a severe financial crisis.
“Kerala has relied on the Ways and Means Advances (WMA) financing mechanism frequently, especially considering the state’s repeated financial challenges over the past few years,” a finance ministry official told businessbenchmark.news.
WMA mechanism is intended to help state governments tide over their temporary mismatches in cash flows and ensure smooth functioning of their day-to-day financial operations.
The tenure of WMA is typically up to three months. This short-term stop gap financing offers a lower-cost borrowing option compared with market borrowings or overdrafts.
Three-month tenure
Once the WMA limit is crossed, the states are forced to rely on overdrafts (ODs), which can be more costly and less flexible than WMAs. In fact, there were reports that Kerala is the state that used the OD facility the most number of times during the last financial year.
Sale of SDLs or bonds
Kerala Government will end up borrowing Rs15,000 crore through the sale of state development bonds (SDLs) or bonds, by the end of September 30, 2024 or end-Q2.
The state has already borrowed Rs8,000 from the market during the first quarter and as per the RBI schedule of borrowing by the states and Union Territories (UTs) for the second quarter ending September 30, Kerala can borrow up to Rs7,000 crore.
As per the schedule of market borrowing announced by RBI, Kerala will borrow Rs3,000 crore during July from the market, and Rs2,000 each in August and September.
