Economics • Banking & FinanceMedium
How does the 'Marginal Standing Facility' (MSF) differ from the regular liquidity adjustment facility repo window for scheduled commercial banks in India?
A. MSF allows banks to borrow overnight funds exceeding their normal borrowing limits by pledging government securities up to a specified SLR limit✓ Correct Answer
B. MSF is a long-term lending facility with repayment periods extending beyond three years
C. MSF requires no collateral whatsoever from borrowing commercial banks
D. MSF is exclusively reserved for foreign banks operating branches within metropolitan centers
💡 Solution & Explanation
The Marginal Standing Facility permits scheduled commercial banks to dip into their Statutory Liquidity Ratio portfolio to borrow overnight funds from the Reserve Bank of India during acute liquidity shortages, typically at a rate higher than the repo rate. Alternative options mischaracterize it as a long-term credit window or unsecured borrowing facility. It acts as a safety valve against unexpected liquidity shocks in the interbank market.
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