MSF Full Form in Banking is Marginal Standing Facility. When inter-bank funding dries up altogether, banks can turn to the RBI for a loan under the margin standing facility (MSF). During the 2011–12 period of monetary policy change, the Reserve Bank of India (RBI) introduced a new program called the Marginal standing facility.
When banks have exhausted all other borrowing options, they might borrow the money from RBI at a punitive rate. In order for banks to borrow funds at a rate higher than the repo rate, a facility known as Marginal Standing option exists.
Facts About MSF
- As part of LAF, banks can borrow money from the RBI by offering up government securities as collateral and paying interest above the repo rate (liquidity adjustment facility).
- A whole percentage point is added to the repo rate to establish the MSF rate.
- Banks can borrow up to 1% of their gross demand and time obligations under MSF (NDTL).
- With the exception of Saturdays, MSF is open for bank borrowing on all other business days.
- RBI accepts applications for a minimum of Rs.1 Crore, and then in subsequent multiples exceeding Rs.1 Crore.
- When the financial system experiences an unexpected shock to its liquidity, MSF can act as a safety valve.