Banking News

What  is Marginal Standing Facility (MSF)?

What is Marginal Standing Facility (MSF)?

Marginal Standing Facility (MSF) by RBI is a liquidity adjustment facility extended to Scheduled banks, as a measure to reduce volatility in call money rates in the inter-bank market. The scheme is introduced by RBI, with effect from 09.05.2011. Under the scheme RBI lends to Scheduled Commercial Banks, for an overnight, having Current Account and SGL Account with it. In the intervening holidays and on Fridays, the facility will be for three days or more, maturing on the following working day. The maximum borrowing allowed is up to one per cent of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of the second preceding fortnight. The MSF is conducted similar to existing Liquidity Adjustment Facility – Repo Scheme (LAF – Repo), as “Hold-in-Custody” repo. The bank which needs the facility submits its requests electronically in the Negotiated Dealing System (NDS) in multiples of crores and a minimum borrowing amount of Rs. One crore. The securities pledged for MSF will be in all SLR-eligible transferable Government of India (GoI) dated Securities/Treasury Bills and State Development Loans (SDL). RBI would debit to concerned Bank’s RC SGL Account of accepted securities and release the funds to the credit of the applicant’s current account, with the MSF application amount. However, debiting to Bank’s RC SGL account does not require separate SGL forms. The Applicable margin is five per cent in respect of GoI dated securities and Treasury Bills. In respect of SDLs, a margin of 10 per cent will be applied.
The rate of interest on amount availed under this facility will be 100 basis point above the LAF repo rate, or as decided by the Reserve Bank. Therefore, MSF facility will be availed by banks only as a last resort, in view of the rate of interest charged for this facility is costlier than repo rate.

Updated on 05.04.2016: In the first bi-monthly report RBI announced that it would continue to provide liquidity as required but progressively lower the average ex ante liquidity deficit in the system from one per cent of NDTL to a position closer to neutrality; The narrow policy rate corridor from +/- 100 basis points to +/-50 Basis points by reducing the MSF rate by 75 BPS and increasing the reverse repo rate by 25 BPS with a view to ensure finer alignment of the weighted average call rate (WACR) with the repo rate. Pursuant to above policy, the reverse repo rate under the LAF stands adjusted to 6.0 per cent and the marginal standing facility (MSF) rate to 7.0 per cent.

Click for related articles:

(i)Do you know that Repo auction framework is different from Repo rate? (ii) What is bank rate?   (iii) CRR and SLR: How they affect on bank credits?(iv)Effects of Repo rate, Reverse repo rate changes


No Comments

Leave a Reply

Your email address will not be published. Required fields are marked *


error: Content is protected !!