States' reliance on RBI's SDF rises in FY26 as WMA, overdraft usage falls

ICRA says states increased use of the RBI's Special Drawing Facility in FY26, while reliance on Ways and Means Advances and overdraft facilities fell to five-year lows

States increased their use of the Reserve Bank of India's Special Drawing Facility (SDF) in the financial year 2025-26, while reliance on Ways and Means Advances (WMA) and overdraft (OD) facilities declined to multi-year lows, according to a report by ICRA.

 

The RBI provides financial accommodation to 27 state governments, excluding Sikkim, and three Union Territories through the SDF, WMA and OD facilities to help address temporary mismatches in receipts and payments.

 

In FY26, 19 states availed funds under the SDF window for 3,008 days, compared with 16 states that used the facility for 2,809 days in FY25.

 

 

According to the report, the increased use of the SDF window was supported by a wider spread between the weighted average cut-off yield of State Government Securities (SGS) and the SDF rate, which is set at 200 basis points below the repo rate. The spread widened to 436 basis points in March 2026 from 289 basis points in March 2025, marking the highest level since July 2022, when it had exceeded 500 basis points.

 

The report said that incremental contributions by some states to the Consolidated Sinking Fund and the Guarantee Redemption Fund may have created greater room for utilisation of the SDF window during FY26.

 

The frequency of states using the WMA facility declined for the second consecutive year to 1,586 days in FY26 from 1,873 days in FY25. ICRA noted that this was the lowest usage of the WMA window in the last five years.

 

Manipur used the WMA facility for 190 fewer days in FY26 compared with FY25, while usage by Kerala, Jammu and Kashmir, Telangana and Andhra Pradesh declined by 62-100 days. However, Himachal Pradesh and Punjab used the WMA window for more than 250 days during the year, with Himachal Pradesh reporting an increase of 103 days from FY25.

 

Similarly, the frequency of availing of the OD facility fell to 386 days in FY26 from 570 days in FY25, the lowest level in five years. The decline was led by Kerala, Manipur and Telangana.

 

Conversely, Himachal Pradesh and Meghalaya increased their use of the OD facility by 30-60 days in FY26.

 

The report said the decline in the use of WMA and OD facilities by Andhra Pradesh, Telangana and Kerala was encouraging and could reflect measures taken by these states to improve cash flow management. In contrast, the increase in the use of these facilities by Himachal Pradesh suggested tight fiscal conditions.