All About BANK RATE and MSF {Marginal Standing Facility} of Monetary Policy Of RBI (in Hindi)

Lesson 4 of 6 • 29 upvotes • 9:04mins

Vikas Kumar Singh Tomar

Marginal Standing Facility (MSF): It refers to the penal rate at which banks can borrow money from the central bank over and above what is available to them through the LAF window. MSF, being a penal rate, is always fixed above the repo rate. 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. MSF came into effect from 9th May 2011. MSF scheme is provided by RBI by which the banks can borrow overnight upto 1 per cent of their net demand and time liabilities (NDTL) i.e. 1 per cent of the aggregate deposits and other liabilities of the banks. However, with effect from 17th April 2012 RBI has raised the borrowing limit under the MSF from 1 per cent to 2 per cent of their NDTL outstanding at the end of the second preceding fortnight. The rate of interest for the amount accessed through this facility is fixed at 1 per cent above the repo rate for all scheduled commercial banks. Bank Rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes.