The WMA (introduced in 1997) scheme is temporary loan facility to the central and state governments by the RBI. It was designed to meet temporary mismatches in the receipts and payments of the governments as the RBI is the banker to the governments. The WMA is to be vacated after 90 days. This means that it is a loan for 90 days.
The interest rate of WMA currently is the repo rate. The limits for WMA are mutually decided by the RBI and GOI. When the WMA limit is crossed the government takes recourse to overdrafts, which are not allowed beyond 10 consecutive working days. The interest rate on overdrafts would be 2 percent more than the repo rate. The cash management of Government of India has considerable impact on liquidity management and conduct of monetary policy.
