Economics • Banking & FinanceMedium
What structural role does the 'Marginal Standing Facility' play within the liquidity management framework of the Reserve Bank of India?
A. It allows scheduled commercial banks to borrow overnight funds against approved government securities beyond their normal statutory liquidity ratio depletion limits during acute cash shortages.✓ Correct Answer
B. It provides long-term capital support to non-banking financial companies facing systemic liquidity crunches.
C. It enables rural regional banks to deposit surplus reserves directly with state treasuries at subsidized interest rates.
D. It sets the benchmark interest rate for retail housing loans issued by public sector banks.
💡 Solution & Explanation
The marginal standing facility acts as a safety valve for scheduled commercial banks to draw overnight funds during severe liquidity shortages by pledging government securities over and above the statutory limit. Alternative functions describe development credit operations or retail benchmark rates governed elsewhere. Introduced in 2011, it helps curb excessive volatility in overnight interbank call rates.
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