BANKING AFFAIRS

Detailed explanation-1: -The system of ad hoc treasury bills to finance the budget deficit will be discontinued with effect from April 1, 1997. A scheme of ways and means advances (WMA) by the RBI to the Central government is being introduced to accommodate temporary mismatches in the government’s receipts and payments.

Detailed explanation-2: -The ad hoc Treasury Bills thus emerged as a mode of financing Central Government’s deficit in mid-1950’s. For smooth conduct of Government business, it was mutually agreed between Central Government and RBI that a minimum cash balance of Rs. 50 crore on Fridays and Rs.

Detailed explanation-3: -This change was made to make the ready supply of bills available to all investors at all times for investment of their temporary surpluses and also to mop up larger amounts of such surpluses for the government.

Detailed explanation-4: -Monetisation of deficit was in practice in India till 1997, whereby the central bank automatically monetised government deficit through the issuance of ad-hoc treasury bills. Two agreements were signed between the government and RBI in 1994 and 1997 to completely phase out funding through ad-hoc treasury bills.

Detailed explanation-5: -2.2 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.