RBI operationalises MSF for providing liquidity to banks

In line with the annual credit policy announcement last week, the Reserve Bank today unveiled the guidelines for the Marginal Standing Facility (MSF) to help banks tide over short-term liquidity problems.

As per the guidelines, a bank can borrow up to 1% of their total deposits from the Reserve Bank under the MSF facility at a rate which is 100 basis points higher than the short-term lending (repo) rate.

The repo rate, which was increased last week by 50 basis points, stands at 7.25%. As such, the rate charged under the MSF would be 8.25%.

The facility is expected to contain volatility in the overnight inter-bank market. The call money rate was about 6.75% during the afternoon trading session.

This facility will be effective today, RBI said in a notification.

"Under the facility, eligible entities can avail overnight up to 1% of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of the second preceding fortnight," it said.

It further said that requests will be received for a minimum amount of Rs 1 crore and in multiples of Rs 1 crore thereafter.

In the event the banks' SLR (Statutory Liquidity Ratio) holdings fall below the statutory requirement on account of the use of this facility, banks will not have the obligation to seek a specific waiver for any default in SLR compliance, subject to a ceiling of 1% of their NDTL.

SLR is the percentage of total deposits kept in government securities and other specified instruments. Currently, the SLR requirement is 24%.