RBI panel suggests higher WMA limit for states, flags year-end borrowing

Panel proposes raising aggregate WMA limit by 11.2% to ₹67,839 crore and urges states to spread market borrowings more evenly across the financial year

The aggregate Ways and Means Advances (WMA) limit for state governments could rise by 11.2 per cent to ₹67,839 crore under recommendations made by a Reserve Bank of India advisory committee, which has also called for greater discipline in the timing of state government borrowings.

 

The proposed limit is higher than the existing ₹61,008 crore. The committee has recommended that the WMA limits be reviewed annually based on the latest three years of accounts data, while the increase in the limits should generally be capped at 4 per cent a year. The revised limit for a state, however, should not be lower than its existing limit, according to the recommendations.

  

The WMA facility allows state governments to meet temporary mismatches between their cash inflows and expenditure. The committee has said the facility should continue to serve this purpose and should not become a source of financing for budget deficits.

 

The proposed increase follows a rise in the aggregate WMA limit over the past decade. The limit was ₹32,225 crore in February 2016 and increased to ₹41,893 crore in April 2020, ₹47,010 crore in April 2022, ₹60,118 crore in July 2024 and ₹61,008 crore in January 2026.

 

The committee has also raised concerns over the timing of state government market borrowings, particularly the concentration of issuances towards the end of the financial year. It has recommended that states plan their borrowing programmes more evenly across the year.

 

A concentration of borrowing in the January-March period can result in a large supply of state development loans (SDLs) entering the market at the same time. This could put pressure on borrowing costs and also leave states with relatively high cash balances towards the end of the financial year, according to the committee.

 

It has recommended wider adoption of the Benchmark Issuance Strategy, under which states seek to build benchmark-sized issuances to improve liquidity in their securities. Most states have already adopted the strategy from financial year 2026-27, while the committee has asked the remaining states to implement it.

 

The panel has also suggested changes to the rules governing overdraft facilities. The maximum period for which a state can remain continuously in overdraft could be reduced to 10 working days from 14. The maximum number of working days for which a state can remain in overdraft during a calendar quarter could also come down to 30 from 36.

 

Another recommendation relates to the use of funds held under the Consolidated Sinking Fund (CSF). The committee has proposed raising the amount of CSF investments that states can use to access the RBI's Standing Deposit Facility (SDF) to 75 per cent from 50 per cent.

 

The higher SDF access is aimed at encouraging states to build their CSF and Guarantee Redemption Fund (GRF) balances. The committee has recommended that states gradually raise these balances to at least 5 per cent of their outstanding marketable debt or guarantees.

 

It has also recommended that states that have not yet joined the CSF and GRF arrangements do so. The broader changes are intended to strengthen states' cash management while ensuring that short-term RBI funding remains focused on temporary liquidity mismatches rather than structural financing requirements.