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Q19 (CAPF/2026) Economy › Money, Banking & Inflation

Consider the following statements about Ways and Means Advances (WMA) :
1. WMA is a provision in which the Reserve Bank of India provides long-term loans to the State Governments/UT Governments and Central Government.
2. WMA is a provision in which the Reserve Bank of India provides short-term loans to the State Governments/UT Governments and Central Government.
3. WMA was introduced in 1997.
4. Interest rate charged by the RBI on WMA is the same as the bank rate.
Which of the statements given above is/are correct?

Result
Your answer: —  ·  Correct: C

Explanation

Ways and Means Advances (WMA) is a mechanism used by the Reserve Bank of India (RBI) under Section 17(5) of the RBI Act, 1934, to provide short-term credit to the Central and State Governments to bridge temporary mismatches in their cash flows. It is repayable within three months, making Statement 2 correct and Statement 1 incorrect.

  • The WMA scheme for the Central Government was introduced on April 1, 1997, replacing the earlier system of ad-hoc Treasury Bills. Thus, Statement 3 is correct.
  • The interest rate on WMA is currently linked to the Repo Rate, not the Bank Rate. For overdrafts (exceeding WMA limits), the rate charged is Repo Rate plus 2 percentage points. Hence, Statement 4 is incorrect.

Since statements 2 and 3 are correct, the correct option is C.

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