Introduction to Marginal Standing Facility (MSF)
Marginal Standing facility or MSF is one of the policies put forth by the RBI to help banks achieve liquidity in case of emergencies. The Reserve Bank of India or RBI has many such tools that help to keep the economy in function by maintaining the right money flow in the economy. Marginal Standing Facility or MSF is one such important tool introduced by the RBI.
Let us look at this important tool of RBI in a little more detail.
What is the Marginal Standing Facility (MSF)?
Marginal Standing Facility or MSF is one of the important provisions put forth by the Reserve Bank of India through which certain commercial banks can achieve liquidity overnight. This proves to be very beneficial at the time when all liquidities are dried up. MSF is used as an emergency tool by the banks to obtain liquidity at the Marginal Standing Facility or MSF rate.
By using the Marginal Standing Facility or MSF, the concerned banks borrow money from the central bank which is done by pledging the government securities at a rate higher than the repo rate. This will help the banks to obtain quick money in the period of 24 hours.
The Reserve Bank of India (RBI) introduced the marginal Standing Facility (MSF) in the year 2011-2012 to help banks in emergency situations and also helps the RBI to maintain the money flow in the economy.
There are a number of benefits of the marginal standing facility including less volatility in the overnight lending rates, avoiding short term liquidity shortfalls, it gives RBI more control over the money flow in the economy and helps banks in emergency situations.
The current Marginal Standing Facility rate or MSF rate in India is 4.25%. This is the rate at which the banks can pledge government securities for gaining liquidity in situations when the liquidity is dried up.
