All you need to know about Marginal Standing Facility

RBI cuts MSF rate by 25 bps

1) What is Marginal Standing Facility (MSF)?

 

MSF rate is the rate at which banks borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities. This came into effect in may 2011. Under the Marginal Standing Facility (MSF), currently banks avail funds from the RBI on overnight basis against their excess statutory liquidity ratio (SLR) holdings. Additionally, they can also avail funds on overnight basis below the stipulated SLR up to 2.5% of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of second preceding fortnight. 

 

2) What is the current MSF rate?

 

In the 2nd quarterly review of the monetary policy for 2013-14 held today, the Reserve Bank of India (RBI) reduced the Marginal Standing Facility (MSF) rate by 25 basis points to 8.75% and increased the repo rate by 25 basis points to 7.75% with immediate effect. 

 

3) What is its borrowing limit?

 

With a view to enabling banks to meet the liquidity requirements of mutual funds under the RBI’s Special Repo Window announced on July 17, 2013, it has been decided to raise the borrowing limit below the stipulated SLR requirement under the MSF from 2% of NDTL to 2.5% of NDTL. The higher MSF limit of 0.5% of NDTL will be available only for the Special Repo Window. This additional limit will be available for a temporary period until further notice.

 

4) Why is it required?

 

Till current revision, MSF was 9%. Banks borrow money from RBI at MSF rate when there is an acute cash shortage or acute asset-liability mismatch. This does not carry any stigma.