Marginal Standing Facility Rate

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. 

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.