Economics • Banking & FinanceMedium
Under the regulatory framework of the Reserve Bank of India, what is the primary operational purpose of the 'Marginal Standing Facility (MSF)'?
A. To provide long-term development loans to agricultural and micro-enterprise sectors at subsidized interest rates
B. To enable scheduled commercial banks to borrow overnight funds from the RBI in emergency situations by liquidating government securities up to a specified limit even outside the SLR quota✓ Correct Answer
C. To allow foreign institutional investors to repatriate dividends and capital gains without triggering foreign exchange volatility
D. To manage the daily liquidity surplus of commercial banks by accepting unremunerated overnight deposits
💡 Solution & Explanation
The Marginal Standing Facility permits scheduled commercial banks to access emergency overnight liquidity from the central bank against government securities exceeding normal statutory limits. It acts as a safety valve against sudden interbank market volatility. Bank rate and repo rate frameworks form essential parts of monetary policy instruments.
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