What is Marginal Standing Facility or MSF-VRK100-05Oct2011

Update on MSF dated 20Jul2013 is available at:

http://ramakrishnavadlamudi.blogspot.in/2013/07/update-on-marginal-standing-facility.html

What is Marginal Standing Facility (MSF)?

The Marginal Standing Facility was started by the Reserve Bank of India during the Annual Policy announced by it on 03 May 2011. Banks can now borrow overnight from the RBI’s MSF window up to one per cent of their respective net demand and time liabilities or NDTL.

This is an additional window and the interest rate is more expensive compared to repo rate under liquidity adjustment facility (LAF). The rate of interest on amounts accessed from this facility will be 100 basis points (or one per cent) above the repo rate. At present, the MSF rate is 9.25 per cent.

Banks will look for the MSF window to borrow money from RBI once they exhausted all other avenues (like, call money market, LAF-repo window, CBLO, market repo, etc.) for overnight money. Under exceptional circumstances, banks will borrow money through MSF window.