The Reserve Bank of India said on Tuesday it has raised the limit for short-term advances to state governments by nearly 19 per cent to Rs 71.70 billion from Rs 60.35 billion.
The new limit for these loans, called the ways and means advances, came into effect from Monday and will stay in place for the next financial year which starts in April, the RBI said in a statement.
It said the rate charged on these advances will be at the bank rate, currently at 6.25 per cent, for a period of one to 90 days. For more than 90 days, the rate has been hiked to one per cent above the bank rate.
These advances were earlier charged at the bank rate.
The RBI said states can also avail special WMA at one per cent below the bank rate. These loans are currently charged at the bank rate.
The loans are availed by both the federal and the state governments to tide over their short-term cash mismatches.
The central bank has allowed states to run overdrafts with it for 14 consecutive working days from 12 earlier.
The rate of interest on the overdrafts up to 100 per cent of the normal WMA limit will be three per cent above the bank rate.
If it exceeds 100 per cent, the states will be charged 6 per cent above the bank rate against the two per cent penalty earlier.
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