What is a Marginal Standing Facility?
The Marginal Standing Facility (MSF) was launched by the Reserve Bank of India in 2011–2012 to support banks during emergencies and preserve the flow of financial assistance through the RBI. Certain commercial banks can access overnight liquidity because of the MSF rate, particularly if the liquidity is out of order. When banks have used up all available borrowing assistance, the RBI will lend them money at a harsh rate. Through the Marginal Standing Facility (MSF), the concerned banks can borrow money from the central bank at a higher rate than the repo rate by pledging government securities. Banks will find it simpler to obtain fast cash within a day. Some of the many benefits of the minimal standing facility are its ability to lessen the volatility of overnight lending rates, avoid temporary shortages of liquidity, and provide RBI with more flexibility.
Marginal Standing Facility at a glance:
Establishment |
2011-2012 |
---|---|
Governing Body |
Reserve Bank of India (RBI) |
Current Marginal Standing Facility rate |
6.15% |
Beneficiaries |
Commercial Banks Operating Under RBI |
Objectives of Marginal Standing Facility:
- To lessen the interbank interest rate’s overnight volatility.
- To support the banks in times of need, such as when interbank liquidity is drying up.
Marginal Standing Facility – MSF Rate
Marginal Standing Facility or MSF is the rate at which banks borrow money overnight from the RBI in exchange for authorized government assets or securities. Established in 2011, this funding window helps lenders stay out of trouble and keep their cash flow in check. The MSF rate, however, is greater than the repo rate. This is important in emergencies, like when there is no interbank liquidity and the overnight interbank rate fluctuates.
Table of Content
- What is a Marginal Standing Facility?
- Working of Marginal Standing Facility:
- Why was MSF Introduced?
- What is the MSF Rate?
- What is the Current MSF Rate?
- Difference between MSF and Repo Rate
- Marginal Standing Facility Rate and its Effect on Rupee Strength:
- Conclusion
- FAQs On Marginal Standing Facility