What is Marginal Standing Facility Rate?

Marginal Standing Facility Rate (MSF) – The rate at which the scheduled banks could borrow funds from the RBI overnight, against the approved government securities is termed as MSF.

Reserve Bank of India in its monetary policy (2011-12) has defined the term Marginal Standing Facility rate as the one, under which scheduled banks could borrow up to 1 % of their respective Net Demand and time Liabilities funds overnight from the Reserve Bank of India (RBI) against approved government securities.

RBI MSF Rate

RBI MSF Rate

Introduction:

RBI announced the introduction of MSF on May 3, 2011 but it was effectuated from May 9, 2011.

  • The accessible rate of interest on the amount from this facility will be 100 basis points (i.e. 1%), which means above the repo rate.
  • Banks can borrow funds through MSF during severe cash shortage (in concern with shortfall of liquidity).

Purpose of introducing MSF?

This evaluation has been introduced by RBI to regulate squat duration asset liability that mismatches more effectively.

From the annual policy statement of RBI- According to this statement RBI has declared that “the stance of monetary policy is, among other things, to manage liquidity to ensure that it remains broadly in balance, with neither a large surplus diluting monetary transmission nor a large deficit chocking off fund flows .”

One of the major importance associated with MSF scheme incorporates that Banks will be able to borrow up to 2% (wef 17/4/2012) of their respective Net demand and time liabilities (NDTL).

Current MSF Rate: 8.25%

Last Revised – 20th September 2013: Cut down by 75 basis points

MSF Rate: 9.5%

Relevant terms:

Repo Rate - This is the re-purchase agreement and can be defined as the rate at which commercial banks borrow loans from RBI. MSF is 1 % costlier than repo rate.

CRR - Cash Reserve Ratio is the cash parked by the commercial sector banks in their specified current account maintained with RBI.

SLR - Statutory liquidity ratio is in the variety of cash (book value), gold (current market value) and balances in unencumbered approved securities.

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4 Responses to “What is Marginal Standing Facility Rate?”

  1. Ankita says:

    Good and elaborate description…easiest one found so far…
    Current MSF rate now is 10.25%

  2. Yashu says:

    Please explain the difference between MSF & Repo Rate. In both the cases banks borrow from RBI against Government securities.

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