News Delhi: An advisory committee appointed by the Reserve Bank of India has recommended tighter limits on how long state governments can remain in overdraft, a proposal that could put additional pressure on states that frequently depend on short term borrowing to manage their finances.
The committee has recommended reducing the maximum period a state can remain continuously in overdraft from 14 working days to 10 working days. It has also proposed reducing the maximum number of overdraft days in a calendar quarter from 36 working days to 30 working days.
The recommendations were included in a report submitted to the RBI on September 29, 2026. They have not yet become new rules. The RBI will examine the recommendations before deciding whether and how to implement them.
The committee has also recommended increasing the overall Ways and Means Advances limit for state governments from Rs 61,008 crore to Rs 67,839 crore. This would represent an increase of about 11.2 percent.
Ways and Means Advances, commonly known as WMA, are short term financial support provided by the RBI to help states manage temporary mismatches between their receipts and payments. States can also use the Special Drawing Facility before accessing WMA and overdraft facilities.
Under the proposed framework, state wise WMA limits would be linked more closely to adjusted revenue receipts from the previous three financial years. The committee has also proposed that future annual increases in the limits should generally be capped at 4 percent.
For Kerala, the proposed WMA limit would increase from the current Rs 2,308 crore to Rs 2,503 crore. This represents an increase of about 8.5 percent, below the proposed 11.2 percent increase in the aggregate limit for all states.
The difference is important for Kerala because the state has made significant use of RBI liquidity facilities. In 2025, Kerala used WMA facilities for 262 days and remained in overdraft for 84 days.
The proposed reduction in overdraft availability could therefore make cash management more challenging for Kerala during periods when government payments are higher than available funds. However, the impact will depend on the final framework approved by the RBI and on the state's revenue and expenditure position.
The committee has also recommended increasing the amount that states can access through the Special Drawing Facility against eligible investments in the Consolidated Sinking Fund from 50 percent to 75 percent. This could provide states with additional short term liquidity under the proposed system.
The committee has further recommended that states strengthen their Consolidated Sinking Fund and Guarantee Redemption Fund. It has proposed that states progressively build these funds to levels equivalent to at least 5 percent of their outstanding marketable debt and guarantees respectively.
The recommendations also seek to encourage states to manage their borrowing more evenly during the financial year. The committee has raised concerns about the concentration of state market borrowing towards the final quarter of the financial year, particularly between January and March.
A more even borrowing pattern could help states manage their cash requirements and reduce pressure on the market during periods when several governments seek funds at the same time.
For Kerala, the proposed changes are significant because the state has faced continuing pressure from its revenue and expenditure position. The proposed increase in its WMA limit would provide some additional room to manage temporary cash shortages, but tighter overdraft limits could reduce the time available to deal with prolonged cash mismatches.
The recommendations therefore present both additional support and tighter discipline for states. While the proposed WMA increase could provide greater access to short term funds, the reduction in overdraft days could encourage governments to improve cash planning and reduce reliance on overdraft facilities.
The committee was chaired by I S N Prasad, former Additional Chief Secretary of the Government of Karnataka. Kerala Additional Chief Secretary for Finance K R Jyothilal was among the members of the committee.
The recommendations remain subject to the RBI's decision. Any final changes to the WMA and overdraft framework will determine how states such as Kerala manage short term cash shortages and borrowing requirements in the coming years.