What changed
A new Marginal Standing Facility (MSF) was launched effective May 9, 2011, as announced in the 2011-12 Monetary Policy. It operates like the LAF Repo but with a higher rate (repo rate + 100 bps) and a borrowing limit of 1% of NDTL. Banks can now access overnight funds even if their SLR holdings fall short by up to 1% of NDTL without seeking a specific waiver.
What it means for you
Banks get an additional overnight liquidity window beyond LAF, at a penal rate, to manage sudden cash crunches. The automatic SLR waiver for up to 1% of NDTL reduces compliance burden for banks using MSF. This facility helps stabilize short-term money market rates by providing a safety valve for liquidity stress.
What you must do
- Ensure your bank has a Current Account and SGL Account with RBI Mumbai to be eligible for MSF.
- Submit MSF requests via NDS between 3:30 PM and 4:30 PM on working days (excluding Saturdays).
- Maintain adequate SLR securities (GoI dated, T-bills, SDLs) to cover margin requirements: 5% for GoI/T-bills, 10% for SDLs.
- Limit borrowing to 1% of NDTL (based on second preceding fortnight) and plan for overnight tenor (3 days on Fridays).
- Update internal liquidity management systems to account for MSF as a contingency funding source.
Who it affects
All Scheduled Commercial Banks with RBI current and SGL accounts, Treasury and ALM teams managing short-term liquidity, Compliance departments monitoring SLR requirements
What is the interest rate for MSF?
The MSF rate is set at 100 basis points above the LAF repo rate, as decided by RBI from time to time.
Can we use MSF if our SLR is below the statutory minimum?
Yes, if SLR falls short by up to 1% of NDTL due to MSF usage, no specific waiver is needed; the shortfall is automatically exempted.
What securities are eligible for MSF?
All SLR-eligible transferable GoI dated securities, Treasury Bills, and State Development Loans (SDLs) are eligible.