Marginal Standing Facility (msf)
Marginal Standing Facility (MSF) was announced by the Reserve Bank of India (RBI) in its Monetary Policy (2011-12) and refers to the penal rate at which banks can borrow money from the central bank over and above what is available to them through the LAF window.
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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.
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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).
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The banks under MSF can borrow funds by pledging government securities within the limits of the statutory liquidity ratio. Only scheduled commercial banks can borrow under this window.
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The objective of MSF is to reduce volatility in the overnight lending rates in the interbank market and to enable smooth monetary transmission in the financial system.
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MSF represents the upper band of the interest corridor with repo rate at the middle and reverses repo as the lower band.