Economics • Banking & FinanceHard
What does the term 'Marginal Standing Facility' denote in the monetary operations managed by the Reserve Bank of India?
A. A dedicated window through which scheduled commercial banks can borrow overnight funds up to a specified limit against government securities in times of acute liquidity shortage.✓ Correct Answer
B. An automated foreign currency clearing facility established to settle international trade transactions in rupees.
C. A long-term refinancing scheme provided exclusively to cooperative agricultural marketing federations.
D. A penalty interest rate charged on banks that fail to maintain minimum daily cash reserve ratios.
💡 Solution & Explanation
The Marginal Standing Facility is a penal lending facility introduced by the Reserve Bank of India allowing scheduled commercial banks to draw overnight funds during acute liquidity crunches by pledging government securities over and above their statutory liquidity ratio holdings up to a permitted percentage of net demand and time liabilities. The interest rate charged under this facility is kept higher than the repo rate, serving as the ceiling for the liquidity adjustment corridor. It provides a safety valve against unexpected liquidity shocks in the interbank market. Eligible securities are valued according to prevailing market prices.
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