Economics • Banking & FinanceMedium
What is the primary function of the 'Marginal Standing Facility (MSF)' window for scheduled banks in India?
A. To provide long-term capital for corporate mergers and acquisitions.
B. To enable banks to borrow overnight emergency funds from the RBI against government securities up to a specific limit when inter-bank liquidity dries up.✓ Correct Answer
C. To facilitate foreign exchange remittances for international trade settlement.
D. To manage government budget deficits through treasury bill issuance.
💡 Solution & Explanation
The Marginal Standing Facility allows scheduled commercial banks to access overnight emergency funds from the Reserve Bank of India against government securities when inter-bank liquidity tightens severely. It serves as a penal rate higher than the repo rate, unlike long-term capital windows or foreign exchange settlement platforms. Understanding RBI liquidity adjustment facilities is critical for clearing banking and economics sections.
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