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The Reserve Bank of India (RBI) introduced Marginal Standing Facility (MSF) to help banks achieve liquidity in times of emergencies.

With MSF, banks can borrow money at an interest rate higher than the repo rate, which is also known as the Marginal Standing Facility rate (MSF rate).

It is also known as the penalty rate at which financial institutions can borrow money from the RBI after exhausting all other financing options.

The current Marginal Standard Facility rate is 6.75% per annum.

To maintain the stability in the economy, the RBI can modify the rate of lending through MSF. 

How Does MSF Rate Work

The rate is pegged at a percentage above the repo rate or 100 basis points. When commercial banks are in severe need of cash, they can request money from the RBI under MSF by providing government securities at a significantly higher rate than the repo rate.

All scheduled banks under the RBI can use this tool to get emergency funds up to 1% of their NDTL (Net Demand and Time Liabilities). However, banking institutions can only benefit from this scheme when interbank liquidity is entirely constrained.

Banks can borrow money on any working day except Saturdays. They need to repay the loan amount by the next working day (24 hours). However, loans taken on Friday are payable on the following Monday.

FAQs on Marginal Standing Facility Rate

When was MSF first launched, and why?

The RBI introduced and implemented MSF as part of the 2011-2012 monetary policy reform. This scheme was implemented to minimise interbank lending rate volatility and promote smooth macroeconomic transmission in the financial system. This facility is used to deal with overnight financial crises. Banks obtaining loans under MSF are required to pay it back to the RBI within 24 hours.

What is the current MSF rate?

The current MSF Rate is 6.75%. 

Can regional rural banks acquire MSF?

Regional rural banks can benefit from the facility since the central bank's Marginal Standing Facility is open to all scheduled banks.

Is the MSF rate higher than the repo rate?

Yes. The MSF rate is higher than the repo rate. As of RBI’s new guidelines, the current MSF rate is 6.75% and the repo rate is 6.50%.

What distinguishes LAF from MSF?

The RBI's Liquidity Adjustment Facility (LAF) is a monetary policy tool used to control the financial sector. The repo rate and reverse repo rate are the two most important rates in LAF. 


On the other hand, the Marginal Standing Facility (MSF) is one of the solutions developed by the RBI to help banks obtain liquidity at the time of financial emergencies.

Does a rise in MSF have an impact on borrowers?

The MSF rate has no direct effect on customers. However, it determines the cost of loans for banks. An increase in the MSF rate may lead to a rise in consumer loan rates.

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