RBI eases norms for state govts, extends overdraft facility | Mint
Active Stocks
Fri Feb 23 2024 15:58:13
  1. Tata Steel share price
  2. 145.50 -0.24%
  1. State Bank Of India share price
  2. 759.40 -0.86%
  1. HDFC Bank share price
  2. 1,420.90 0.08%
  1. NTPC share price
  2. 337.70 -0.54%
  1. ITC share price
  2. 411.60 -0.65%
Business News/ News / India/  RBI eases norms for state govts, extends overdraft facility
BackBack

RBI eases norms for state govts, extends overdraft facility

RBI extends the overdraft facility for a longer period of time until 30 September
  • A state or UT can now avail of overdraft facility for 21 working days, compared with the current 14 days, RBI says
  • RBI had done a total of Rs40,000 crore worth of OMOs in March, to tide over the liquidity issues cause by coronavirus crisis in the market. (Pradeep Gaur/Mint )Premium
    RBI had done a total of Rs40,000 crore worth of OMOs in March, to tide over the liquidity issues cause by coronavirus crisis in the market. (Pradeep Gaur/Mint )

    MUMBAI : The Reserve Bank of India (RBI) on Tuesday relaxed norms for state governments facing short-term mismatches by extending the duration of overdraft facility available until 30 September.

    This is the second time in a week that the central bank has relaxed states’ ability to borrow, after increasing their ability to borrow short-term loans on 31 March.

    In a circular, RBI said that the number of days for which a state or Union territory (UT) can avail of overdraft facility has been extended to 21 working days from the current 14 days. Similarly, the number of days for which a State/UT can be in overdraft in a quarter has been eased to 50 working days from 36.

    “Increasing overdraft facility to 21 days from 14 days provides greater flexibility to state governments to time their borrowing," said Naveen Singh, senior vice-president, ICICI Securities Primary Dealership.

    The central bank had recently increased the Ways and Means Advances or WMA limit by 30% for all states and Union territories to enable them to tide over the crisis caused by the covid-19 outbreak.

    WMA is a temporary liquidity arrangement with the central bank, which enables the Centre and states to borrow money up to 90 days from RBI, to tide over their liquidity mismatches.

    Typically, the government can avail the immediate cash from RBI at the existing repo rate under the WMA facility. But it has to return it within 90 days. If the WMA exceeds 90 days, if would be treated as overdraft. RBI has now extended this overdraft facility by 7 days.

    The central bank’s two successive circulars within a week underline the important frontline role being played by states and Union territories in combating the spread of covid-19.

    Last week, RBI also increased WMA for the Centre to 1.2 trillion for the first half of 2020-21, up from 75,000 crore in the first half of 2019-20, and 35,000 crore for the second half of 2019-20 originally announced.

    On Tuesday, RBI also published the auction results of state government bonds which saw a spike in bond yields, despite a cut in policy rate and liquidity infusion by RBI. Of the 37,500 crore worth of state government bonds that were auctioned, a total of 32,560 crore was raised, the highest-ever fund raise.

    Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

    ABOUT THE AUTHOR
    Gopika Gopakumar
    Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
    More Less
    Published: 07 Apr 2020, 06:56 PM IST
    Next Story footLogo
    Recommended For You
    Switch to the Mint app for fast and personalized news - Get App