The Reserve Bank of India on Tuesday permitted states and union territories greater space for availing overdraft facilities.

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The relaxation comes at a time when states are witnessing rising expenditure as they battle the spread of coronavirus and the economic impact as a consequence of the ongoing nationwide lockdown.

The RBI has decided to increase the number of days for which a state or union territory can be in overdraft continuously to 21 working days from the current stipulation of 14 working days.

Further, the number of days for which a state or UT can be in overdraft in a quarter has also been increased to 50 working days from the current 36 working days.

These measures have been undertaken to “provide greater flexibility to the state governments to tide over their cashflow mismatches”, the RBI said in its statement.

This arrangement will come into force with immediate effect and will remain valid until September 30, 2020.

Last week, the RBI had raised the limit for short-term credit that the Union government can borrow from the central bank. The Ways and Means Advances (WMA) credit limit was raised to Rs 1.20 lakh crore for the first half of 2020-21 for the central government, compared to Rs 75,000 crore last year.

The RBI had also raised the Ways and Means Advances limit for all states and union territories by 30 percent to enable them to tide over the crisis caused by the coronavirus outbreak, effective immediately until 30 September.

Ways and Means Advances scheme was introduced by the RBI to help meet any mismatches in the receipts and payments of the government.

Under WMA, governments can avail immediate cash from the RBI and return it within the next 90 days along with interest. Interest is charged at the existing repo rate. When the govt is unable to return the cash within the stipulated 90 days, it is treated as overdraft by RBI and a higher interest rate is charged on the amount.

The limits for WMA are usually mutually decided by the government and the RBI, and revised periodically.

The country is currently under a 21-day lockdown until April 14. Economic activity has been gravely impacted due to the lockdown as all services deemed non-essential have been ordered shut.

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First Published:Apr 7, 2020 3:43 PM IST