Marginal Standing Facility

The Marginal Standing Facility (MSF) is a lending facility provided by the Reserve Bank of India (RBI) to commercial banks to address emergency liquidity shortages in the overnight money market. Under MSF, banks can borrow funds by pledging approved government securities as collateral.

Key Features: Introduced by the RBI in 2011–12. Provides overnight liquidity to banks facing short-term funding gaps. The MSF rate is the interest charged by the RBI, which is higher than the repo rate. Acts as the upper bound for overnight interbank rates, helping stabilize the money market. Borrowing under MSF is limited, ensuring it is used only for emergency requirements. Example: A bank faces a shortfall of ₹500 crore in its liquidity position at the end of the day. It borrows the required amount from the RBI under MSF by pledging government securities. If the MSF rate is 6.5%, the bank pays this interest for the overnight loan