Economics • Banking & FinanceMedium
In the Indian monetary framework, what is the 'Marginal Standing Facility (MSF)'?
A. A window through which scheduled commercial banks can borrow overnight funds from the RBI against approved government securities at a penalty rate✓ Correct Answer
B. A long-term lending facility provided by NABARD to cooperative banks for seasonal agricultural operations
C. An interbank call money market mechanism regulated directly by the Securities and Exchange Board of India
D. A deposit facility where banks park excess reserves with RBI to earn risk-free interest
💡 Solution & Explanation
The Marginal Standing Facility serves as a penal borrowing window enabling scheduled commercial banks to access overnight liquidity from the RBI against excess government securities when facing acute cash shortages. Unlike the regular repo rate window, MSF permits banks to dip below their mandatory Statutory Liquidity Ratio threshold up to a specified percentage. It acts as an upper ceiling for the overnight interest rate corridor.
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