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%.
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