Consider the following statements in regard to marginal standing facility (MSF) of RBI:begin{enumerate}item It will help in reducing volatility in the overnight lending rates in the interbank market.item The borrowing under the MSF should be over and above the statutory liquidity requirement.item It will not help in reducing lending rates.end{enumerate} Which of the statements given above is/are correct?

BANKING GENERAL KNOWLEDGE

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

Consider the following statements in regard to ‘marginal standing facility (MSF)’ of RBI:

A	1 only
B	2 only
C	Both 1 and 2
D	only 3

Explanation:

Detailed explanation-1: -What is MSF rate India? Currently, the MSF rate of borrowing is 6.25% p.a. which is 25 basis points or 0.25% higher than the Repo rate. Kickstart your UPSC 2023 preparation today!

Detailed explanation-2: -Definition: Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.

Detailed explanation-3: -Detailed Solution. The correct answer is Both I and II. Marginal Standing Facility (MSF) is a facility under which scheduled commercial banks can borrow an additional amount of overnight money from the RBI by dipping into their SLR portfolio up to a limit at a penal rate of interest.

Detailed explanation-4: -MSF is sanctioned against government securities and the MSF rate is around 100 basis points or one percent higher than the repo rate. These loans fall under RBI’s liquidity adjustment facility or LAF. The maximum amount that can be availed under MSF is a percentage of the bank’s NDTL or net demand and time liabilities.

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