Marginal standing facility (MSF)
- September 29, 2020
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Subject: Economy
Context:
The RBI, as a temporary measure, had increased the borrowing limit for scheduled banks under the marginal standing facility scheme from 2 per cent to 3 percent of their Net Demand and Time Liabilities (NDTL)
Concept:
- Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.
- Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility or LAF in short.
- The MSF rate is pegged 100 basis points or a percentage point above the repo rate.
- Under MSF, banks can borrow funds up to one percentage of their net demand and time liabilities (NDTL).