What is Marginal Standing Facility

Marginal Standing Facility, MSF is the rate at which banks can borrow overnight from RBI.This was introduced in the monetary policy of RBI for the year 2011-2012. The MSF is pegged 100bps or a % above the repo rate.Banks can borrow funds through MSF when there is a considerable shortfall of liquidity. This measure has been introduced by RBI to regulate short-term asset liability mismatches more effectively.

The Reserve Bank of India in its monetary policy for 2011-12, introduced the marginal standing facility (MSF), under which banks could borrow funds from RBI at 8.25%, which is 1% above the liquidity adjustment facility-repo rate against pledging government securities.

Current MSF: In the 2nd quarterly review of the monetary policy for 2013-14, 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. 

Difference between liquidity adjustment facility-repo rate and marginal standing facility rate : Banks can borrow from the Reserve Bank of India under LAF-repo rate, which stands at 7.25%, by pledging government securities over and above the statutory liquidity requirement of 24%. Though in case of borrowing from the marginal standing facility, banks can borrow funds up to one percentage of their net demand and time liabilities, at 8.25%. However, it can be within the statutory liquidity ratio of 24%.