Economics • Banking & FinanceEasy
What is the primary purpose of 'Marginal Standing Facility (MSF)' in the Indian banking system?
A. To allow scheduled banks to borrow overnight funds from the RBI against government securities in emergency situations.✓ Correct Answer
B. To provide long-term development loans to agricultural sectors.
C. To regulate foreign institutional investments in equity markets.
D. To manage retail digital currency transactions.
💡 Solution & Explanation
The Marginal Standing Facility acts as a penal window introduced by the Reserve Bank of India to let scheduled commercial banks borrow overnight funds in severe liquidity crunches by pledging government securities over and above their statutory liquidity ratio limits. It serves as an upper bound for the overnight interest rate corridor. Monetary policy instruments are vital concepts tested extensively in banking and civil service examinations.
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