Marginal standing facility (MSF) is a window for banks to borrow from RBI in an emergency when interbank liquidity dries up completely.
In other words, it refers to the facility under which scheduled commercial banks can borrow an additional amount of overnight money from the Central bank over and above what is available to them through the LAF window.
Banks borrow from RBI by pledging government securities at an interest rate above the repo rate under LAF (liquidity adjustment facility), which can be termed as the Marginal standing facility rate.
The minimum amount for which RBI receives application is ₹1 cr. and afterwards in multiples of Rs. 1 cr.
Objective: This scheme was introduced 2011-12 by RBI with the aim of reducing volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system.
The current marginal standing facility rate in India is 6.75%.
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