Economics • Banking & FinanceMedium
What does the term 'Marginal Standing Facility (MSF)' signify in the monetary policy framework of the Reserve Bank of India?
A. A window through which scheduled commercial banks can borrow overnight funds from the RBI against approved government securities up to a designated limit at a rate higher than the repo rate.✓ Correct Answer
B. The minimum interest rate below which banks are not permitted to lend to retail borrowers.
C. The mandatory deposit ratio maintained by regional rural banks with apex cooperative institutions.
D. A long-term lending facility provided exclusively for infrastructure financing.
💡 Solution & Explanation
The Marginal Standing Facility allows scheduled commercial banks to borrow overnight funds directly from the Reserve Bank of India up to a specific percentage of their net demand and time liabilities against approved government securities. Introduced under Section 17 of the Reserve Bank of India Act, this penal window operates at a rate higher than the standard repo rate to address acute liquidity shortages. Banks often use this mechanism to manage unexpected cash reserve ratio shortfalls at the end of a working day.
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