What is Marginal Standing Facility (MSF) - UPSC Economy Notes

Marginal Standing Facility (MSF) - Simple Explanation Marginal Standing Facility (MSF) is a facility provided by the Reserve Bank of India (RBI) to banks when they need emergency funds. Banks can borrow money from the RBI overnight (for one day) by pledging government securities as collateral. Key Points: It is a short-term borrowing option for banks in urgent need of cash. The interest rate on MSF is higher than the repo rate to discourage frequent use. It is used when banks do not have enough liquidity to meet their daily requirements. Little confusing? Don't worry! I'll explain in the easiest way possible with a step-by-step approach. Let's break it down super simple with numbers and real-life examples . Step 1: What is SLR? Before understanding MSF , we need to know SLR (Statutory Liquidity Ratio) . Banks must keep some money in the form of government securities (like FD for banks) with the RBI . Let’s say SLR is 18% (this means banks must keep 18% of their total money as a backup). …