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Every time your loan EMIs go up, there’s a good chance a rate change triggered it. One of the most important—but least understood—rates behind this is the Marginal Standing Facility rate. It plays a major role in how banks borrow money during emergencies, and that cost often trickles down to you. If you’ve ever wondered why loans suddenly become more expensive, or what banks do when they run out of cash, this simple concept holds the answer. Knowing how the MSF rate works could help you avoid surprises and manage your money with more confidence.
The Marginal Standing Facility (MSF) is an emergency loan service provided by the Reserve Bank of India (RBI) to commercial banks. Banks use it to borrow money overnight when they face a sudden cash shortage and cannot get funds from other sources.
This facility acts like a backup option. It helps banks meet urgent needs without causing delays or failures in payments. Since it’s meant for emergencies, the interest charged—called the MSF rate—is higher than other borrowing rates. This keeps banks from using it too often and encourages them to plan their cash flow better.
The Marginal Standing Facility rate is the interest charged to banks when they borrow overnight from the Reserve Bank of India during urgent cash shortages. Banks turn to this option only when they can’t secure funds through usual channels like the repo facility or borrowing from other banks.
The MSF rate is set above the repo rate on purpose, so banks use it only as a last resort during critical cash shortages. This discourages routine use and helps maintain financial discipline. To borrow under MSF, banks can even use government securities kept aside for meeting the Statutory Liquidity Ratio (SLR), which is not allowed under repo borrowing.
When the RBI increases the MSF rate, banks face higher borrowing costs. This often leads them to raise lending rates for customers, which can increase your home loan EMIs, car loan interest, or business loan repayments. On the other hand, a lower MSF rate can ease borrowing pressure and improve liquidity in the system.
Here, you can check the latest MSF and repo rate figures that directly affect your loan interest and borrowing costs:
Interest Rate Type |
Current Change |
Changed From |
Last Updated On |
|---|---|---|---|
Marginal Standing Facility Rate (MSF) |
6.75% |
6.50% |
10-Apr-25 |
Repo Rate |
6.50% |
6.25% |
10-Apr-25 |
These rates are decided by the RBI’s Monetary Policy Committee. Even a small increase, like 0.25%, can raise your EMIs and affect how much banks charge for loans. Keeping track of these changes helps you plan your finances better.
Understanding a few basic financial terms can help you see how the Marginal Standing Facility rate fits into the larger banking system. Here are the key terms you should know to better understand how banks borrow money and how RBI policies affect your finances:
This is the rate at which RBI lends money to banks for short periods by buying their securities with an agreement to repurchase them later.
This is the rate at which RBI borrows money from banks to reduce excess cash in the financial system.
This is the interest rate RBI charges banks for long-term loans without any repurchase agreement.
This is the portion of a bank's total deposits that must be kept with the RBI in cash, without earning any interest.
This is the percentage of a bank’s total deposits that must be held in the form of gold or approved government securities.
This is the total money banks owe to customers, including both savings that can be withdrawn anytime and fixed deposits with a set term.
This is a system through which RBI adjusts short-term liquidity by letting banks borrow or lend money using repo and reverse repo operations.
Understanding the difference between the Marginal Standing Facility (MSF) rate and the repo rate helps you see how banks handle urgent cash needs versus routine borrowing. Here’s a side-by-side comparison to make it easy for you:
Factor |
Repo Rate |
MSF Rate |
|---|---|---|
Purpose |
Used for regular, short-term borrowing |
Used during emergencies when banks face sudden cash shortages |
Eligibility |
Available to all commercial banks |
Available only to scheduled commercial banks |
Collateral |
Requires approved securities above the SLR limit |
Allows use of SLR securities even if it breaches the required limit |
Interest Rate |
Lower, standard short-term borrowing rate |
Higher—usually 0.25% more than the repo rate |
Loan Duration |
Short-term, but not limited to overnight |
Strictly overnight borrowing only |
Borrowing Limit |
No specific limit, depends on RBI operations |
Limited to a small percentage (usually 1%) of the bank's NDTL |
Here’s how a rise in the Marginal Standing Facility rate can impact your everyday finances and borrowing experience:
Your loan EMIs may rise if you have a floating interest rate
Banks may cut back on lending, making loans harder to get
Higher borrowing costs can slow down business growth and job creation
Personal loans and home loans may become more expensive over time
Car and education loan approvals may take longer or get stricter
Banks may take longer to pass on better interest rates to savers
You might need to adjust your monthly budget to manage higher EMIs
The Marginal Standing Facility rate plays a key role in how banks borrow and how much you pay on loans. By understanding what MSF is, how it works, and how it differs from the repo rate, you can better manage your finances. Staying aware of rate changes helps you make smarter decisions and avoid surprises in your monthly budget.
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