Marginal Standing Facility (MSF)
The emergency borrowing window for banks during liquidity shortages.
Introduction
Marginal Standing Facility (MSF) is an emergency borrowing window for banks.
Meaning of MSF
MSF allows banks to borrow overnight funds from RBI by pledging government securities beyond SLR limits.
Purpose
MSF acts as a last-resort facility when banks face acute liquidity shortages.
MSF Rate
MSF rate is higher than repo rate, discouraging frequent use.
Importance in Crisis
During liquidity stress, MSF helps prevent systemic instability in banking.
Conclusion
MSF strengthens RBI’s control over short-term interest rates and liquidity shocks.