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Q21 (CAPF/2026) Economy › Government Finance & Budget

Consider the following statements about the Special Drawing Facility (SDF) :
1. It makes provision of short-term loans by the RBI to the State Governments/UT Governments against Government Securities.
2. Interest rate charged by the RBI on it is the same as Repo Rate.
3. It can be availed by the State Governments/UT Governments only after exhausting the normal Ways and Means Advances limit.
Which of the statements given above is/are correct?

Result
Your answer: —  ·  Correct: B

Explanation

The Special Drawing Facility (SDF) is a credit mechanism provided by the RBI to State Governments and Union Territories to manage temporary mismatches in their cash flows.

  • Statement 1 is correct: The SDF is a form of short-term credit provided against the collateral of Government of India securities (G-Secs) held by the State Governments.
  • Statement 2 is incorrect: The interest rate on SDF is not the same as the Repo Rate. According to the RBI Advisory Committee on WMA (2021), the interest rate for SDF is linked to the Repo Rate but is significantly lower (typically Repo Rate minus 200 basis points).
  • Statement 3 is incorrect: The SDF is the first tier of credit. State Governments must exhaust their Special Drawing Facility before they can avail of the Normal Ways and Means Advances (WMA). This is because SDF is cheaper due to being secured by collateral.
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