What is Marginal Standing Facility (MSF)?

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The Marginal Standing Facility (MSF) is a window introduced by the Reserve Bank of India (RBI) in May 2011 to provide short-term liquidity support to scheduled commercial banks in emergency situations. In essence, the MSF acts as a safety net for banks in times of unexpected liquidity shortages. It allows them to borrow short-term funds from the RBI at a penal rate to meet their immediate obligations.

Key Features:

  • Eligibility: All scheduled commercial banks in India can participate in the MSF scheme.
  • Borrowing Limit: Banks can borrow up to 2.5% of their Net Demand and Time Liabilities (NDTL) from the RBI under this facility.
  • Minimum Amount: The minimum loan application amount is ₹10 million, with subsequent increments in multiples of ₹10 million.
  • Collateral: Unlike repo rate borrowings, banks can pledge government securities from their SLR quota (up to 1%) as collateral for MSF loans. This provides greater flexibility compared to repo where SLR cannot be used as collateral.
  • Penalty Exemption: Pledging SLR quota securities under MSF does not attract any penalty for falling below the minimum SLR requirement (currently 18%).