Which of the following facilities allows scheduled commercial banks to dip below the Statutory Liquidity Ratio (SLR) up to a certain limit to borrow overnight funds from the RBI during extreme liquidity stress?

💡 Solution & Explanation

The Marginal Standing Facility allows scheduled commercial banks to borrow overnight funds from the Reserve Bank of India up to a prescribed limit by dipping into their Statutory Liquidity Ratio portfolio during severe liquidity crunches. Unlike Open Market Operations which involve outright purchase or sale of government securities by the central bank, MSF serves as an emergency window. It generally carries an interest rate higher than the repo rate to discourage frequent borrowing.