MARGINAL STANDING FACILITY

Marginal Standing Facility (MSF)

• The Reserve Bank of India, being a bankers’ bank, acts as a lender of last resort. The Marginal Standing Facility (MSF) announced by the Reserve Bank of India (RBI) in its Monetary Policy, 2011-12 refers to the facility under which scheduled commercial banks can borrow additional amount of overnight money from the central bank over and above what is available to them through the LAF window by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a limit ( a fixed per cent of their net demand and time liabilities deposits (NDTL) liable to change every year ) at a penal rate of interest. This provides a safety valve against unexpected liquidity shocks to the banking system.
•  The scheme has been introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system.
• Banks can borrow through MSF on all working days except Saturdays, between 7.00 pm and 7.30 pm, in Mumbai. The minimum amount which can be accessed through MSF is ` 1 crore and more will be available in multiples of ` 1 crore.
• The MSF would be the last resort for banks once they exhaust all borrowing options including the liquidity adjustment facility on which the rates are lower compared to the MSF. The MSF rate being a penal rate automatically gets adjusted to a fixed per cent above the repo rate. MSF is at present aligned with the Bank rate.
•  Practically, MSF represents the upper band of the interest corridor with repo rate at the middle and reverse repo at the lower band. In fact, the MSF rate and reverse repo rate determine the corridor for the daily movement in the weighted average call money rate. 

Present MSF = 6.25%