Economics • Banking & FinanceMedium
Which of the following correctly describes 'Marginal Standing Facility (MSF)' in the Indian banking system?
A. A facility allowing scheduled commercial banks to dip into their Statutory Liquidity Ratio (SLR) up to a permitted limit to borrow overnight funds from the RBI during severe liquidity crunches.✓ Correct Answer
B. A long-term lending window provided by the RBI to finance housing infrastructure.
C. A specialized deposit scheme for non-resident Indians offering tax-free interest.
D. A penalty mechanism for banks failing to meet their priority sector lending targets.
💡 Solution & Explanation
The Marginal Standing Facility permits scheduled commercial banks to borrow overnight funds directly from the central bank against government securities, even exceeding standard statutory liquidity limits up to a threshold. Long-term housing finance and priority sector penalty mechanisms operate through entirely separate administrative windows.
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