What is Marginal Standing Facility (MSF)?

Marginal Standing Facility (MSF) by RBI is a liquidity adjustment facility extended to Scheduled banks, as a measure to reduce volatility in call money rates in the inter-bank market. The scheme is introduced by RBI, with effect from 09.05.2011. Under the scheme RBI lends to Scheduled Commercial Banks, for an overnight, having Current Account and SGL Account with it. In the intervening holidays and on Fridays, the facility will be for three days or more, maturing on the following working day. The eligible banks have the option to borrow up to three per cent of their respective NDTL outstanding at the end of the second preceding fortnight. The eligible banks shall also continue to access overnight funds under this facility against their excess SLR holdings.In the case of banks’ SLR holding falling below the statutory requirement up to three per cent of their NDTL, banks shall not have the obligation to seek a specific waiver for default in SLR compliance arising out of use of this facility in terms of notification issued under sub section (2A) of Section 24 of the Banking Regulation Act, 1949.

The MSF is conducted similar to existing Liquidity Adjustment Facility – Repo Scheme (LAF – Repo), as “Hold-in-Custody” repo. The bank which needs the facility submits its requests electronically in the Negotiated Dealing System (NDS) in multiples of crores and a minimum borrowing amount of Rs. One crore. The securities pledged for MSF will be in all SLR-eligible transferable Government of India (GoI) dated Securities/Treasury Bills and State Development Loans (SDL). RBI would debit to concerned Bank’s RC SGL Account of accepted securities and release the funds to the credit of the applicant’s current account, with the MSF application amount. However, debiting to Bank’s RC SGL account does not require separate SGL forms. The Applicable margin is five per cent in respect of GoI dated securities and Treasury Bills. In respect of SDLs, a margin of 10 per cent will be applied.
The rate of interest on amount availed under this facility will be 100 basis point above the LAF repo rate, or as decided by the Reserve Bank. Therefore, MSF facility will be availed by banks only as a last resort, in view of the rate of interest charged for this facility is costlier than repo rate.

Government securities to the extent allowed by the Reserve Bank under Marginal Standing Facility (MSF) are permitted to be reckoned as the Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing Liquidity Coverage Ratio (LCR) of banks. In addition to this, banks are permitted to reckon up to another 15 per cent of their NDTL within the mandatory SLR requirement as level 1 HQLA. This facility has been provided to enable banks to avail liquidity for Liquidity Coverage Ratio.

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