State Development Loans and Ways & Means Advance

Subject: Economy

Context:

According to data from the Reserve Bank of India (RBI), Tamil Nadu government has so far raised ₹30,500 crore in fiscal 2020-21 and has topped market borrowings among all the States. Tamil Nadu accounted for 17% of the borrowings done  through state development loans

Concept:

The State has issued more long-tenure bonds when compared to other States, and has not tapped short-terms funding avenues like Ways and Means Advances.

State development loans

• State Development Loans (SDLs) are dated securities issued by states for meeting their market borrowings requirements.
• In effect, the SDL are similar to the dated securities issued by the central government.
• Purpose of issuing State Development Loans is to meet the budgetary needs of state governments. Each state can borrow upto a set limit through State Development Loans.
• The SDL securities issued by states are credible collateral for meeting the SLR requirements of banks as well as collateral for availing liquidity under the RBI’s LAF including the repo.

Ways & means advance

• The WMA facility enables the government to take a temporary short term loan from the central bank, mainly to address the mismatch between its inflow of revenues and outflow of expenditure.
• Under Section 17(5) of RBI Act, 1934, the RBI provides Ways and Means Advances (WMA) to the States banking with it to help them to tide over temporary mismatches in the cash flow of their receipts and payments. Such advances are repayable in each case not later than three months from the date of making that advance.
• There are two types of WMA – normal and special.
• While normal WMA are clean advances, special WMA are secured advances provided against the pledge of Government of India dated securities