Economics • Banking & FinanceMedium
What structural role does the Marginal Standing Facility play for scheduled commercial banks within the Reserve Bank of India framework?
A. It allows banks to borrow overnight funds in emergency situations by dipping into their Statutory Liquidity Ratio portfolio up to a permitted limit✓ Correct Answer
B. It provides long-term venture capital funding for technology start-ups registered under Startup India
C. It mandates foreign banks operating in India to maintain reserves in foreign currency accounts
D. It acts as a clearing house for settling international trade deficits between member countries
💡 Solution & Explanation
The Marginal Standing Facility window enables scheduled commercial banks to access overnight liquidity from the Reserve Bank of India during severe cash shortages by pledging government securities, even exceeding their normal repo borrowing limits. Banks can utilize securities held under the Statutory Liquidity Ratio up to a specified percentage for this purpose. The interest rate charged here is typically higher than the standard repo rate.
More Economics Banking & Finance questions
- What does the term 'Substandard Asset' signify under the Reserve Bank of India's asset classification norms?
- How are Non-Performing Assets categorized by commercial banks when a credit facility remains doubtful of…
- What does 'Marginal Cost of Funds based Lending Rate (MCLR)' replace in the Indian banking system?
- What does the 'Ways and Means Advances (WMA)' facility provided by the Reserve Bank of India entail?
- In the context of Indian banking, what does the term 'Special Mention Account (SMA)' signify?