Economics • Banking & FinanceEasy
Under the regulatory purview of the Reserve Bank of India, what is the primary purpose of the 'Marginal Standing Facility (MSF)' window?
A. To allow commercial banks to borrow overnight funds against approved government securities in emergencies beyond their normal borrowing limits.✓ Correct Answer
B. To provide long-term infrastructural loans to public sector undertakings.
C. To regulate foreign exchange reserves through direct market interventions.
D. To provide interest-free cash grants to rural cooperative banks.
💡 Solution & Explanation
The Marginal Standing Facility allows scheduled commercial banks to borrow overnight funds from the Reserve Bank of India in emergency situations up to one percent of their Net Demand and Time Liabilities against approved government securities. Unlike the regular liquidity adjustment facility window, it serves as a safety valve during severe cash shortages. This rate is usually kept higher than the repo rate to penalize excessive borrowing. MSF was introduced in 2011 to reduce volatility in the overnight interbank rate.
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