The Full Form of ‘WMA’ in Banking is ‘Ways and Means Advances’.
Full Form of WMA
Ways and Means Advances (WMA) is one of the most important tools used by banks to provide short-term financing. It is a type of loan that allows banks to borrow money from the central bank to meet their day-to-day financial needs.
The full form ‘WMA’ stands for Ways and Means Advances which is a short term credit facility provided by the Reserve Bank of India (RBI) to commercial banks in order to help them manage their liquidity requirements. WMA was created under Section 17(5) of the RBI Act, 1934 and provides commercial banks with an opportunity to borrow funds from RBI without providing any collateral or security in return.
When a bank has a shortage of funds due to seasonal fluctuations, it can borrow money from RBI through WMA. This provides banks with some degree of flexibility when managing their liquidity requirements. The amount that can be borrowed through WMA is limited by the RBI and this limit is revised periodically. Banks must repay these advances within 90 days or else they will be subject to penalty charges imposed by the central bank. The interest rate on WMA loans is set at 1% above the repo rate prevailing at the time of borrowing.
WMA loans are generally used for short-term purposes such as meeting seasonal demand for funds or for covering temporary mismatches in cash flows between different branches or departments within a bank. These advances are also used for covering up gaps in deposits and investments, as well as for funding additional costs like marketing campaigns, etc.
In addition to providing temporary liquidity solutions, WMA loans also serve an important function in maintaining economic stability in times of crisis or uncertainty. When there is an increase in demand deposits leading to increased pressure on lending rates, then banks can take advantage of this situation by borrowing through WMA instead of increasing their deposit interest rates. This helps keep overall lending rates stable and prevents a sharp increase in inflationary pressures during uncertain times.
Overall, ways and means advances are a vital source of short-term financing for commercial banks and play an important role in helping them manage their liquidity needs while safeguarding economic stability during turbulent times.
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