Question

A facility under which scheduled commercial banks can borrow an additional one-day amount from the Reserve Bank of India up to a limit in their statutory liquidity ratio at a penal rate of interest is called ______.
1. Marginal standing facility
2. Repo rate
3. Bank rate
4. Funds adjustment facility

Answer 1

Correct Answer - Option 1 : Marginal standing facility

The correct answer is ​Marginal standing facility.

• MSF is a facility under which scheduled commercial banks can borrow an additional amount of overnight money from the RBI by dipping into their SLR portfolio up to a limit at a penal rate of interest.
• This provides a safety wall against unanticipated liquidity shocks to the banking system.
• The MSF is a scheme launched by RBI in 2011-12.
• Under MSF banks can borrow funds up to 1% of their net demand and time liability.
• The minimum amount for which RBI receives application is Rs. 1 crore and afterwards in multiples of rupees 1 crore.

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• The current rate of interest - 
  • Policy Repo Rate: 4.00%
  • Reverse Repo Rate: 3.35%
  • Marginal Standing Facility Rate: 4.25%
  • Bank Rate: 4.25%
  • CRR: 3%
  • SLR: 18.00%

Repo rate	Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. For which the commercial banks offer securities such as Treasury Bills to the RBI in return for short term funds.
Bank rate	A bank rate is a rate at which the Reserve Bank of India (RBI) provides the loan to commercial banks without keeping any security.