The Reserve Bank of India (RBI) employs different tools to control the cash circulation within the anatomy of the economy. Some of the tools in its monetary policy are Repo Rate, reverse Repo Rate and the marginal standing facility (MSF).
MSF Rate is a provision put forth by the RBI that allows commercial banks and lenders to increase their liquidity overnight. The facility was introduced in 2011-12 to help financial institutions in case of an emergency, to maintain the fund flow. This facility is particularly beneficial for concerned banks as they can pledge Government securities and avail of funds within 24 hours.
The Marginal Standing Facility Rates are typically 0.25% to 25 basis points higher than that of the Repo Rate. With the help of this facility, a financial institution can receive monetary assistance of up to 1% of their SLR securities or net demand and time liabilities (NDTL). Moreover, during its introduction in 2011, the rate of interest of MSF was 100 basis points higher than the Repo Rate. Afterwards, in 2013, RBI increased this rate by 300 basis points or 3% to manage the falling valuation of INR. Later RBI reduced this rate by 50 basis points.
| Interest Rate Type | Current Rate | Last Updated On |
|---|---|---|
| Repo Rate | 5.50%* | 06 Jun 2025 |
| Marginal Standing Facility | 5.75%* | 06 Jun 2025 |
Here are a few terms associated with Marginal Standing Facility (MSF) that one should know about:
- NDTL: NDTL stands for Net Demand and Time Deposit Liabilities. Here time liabilities signify deposits that individuals or, in this case, financial institutions can withdraw after a previously determined period. Demand liabilities, on the other hand, convey a contrary working principle.
- SLR: The term Statutory Liquidity Ratio or SLR refers to the liquidity reserve assets that commercial banks and lenders need to maintain in government securities or gold to stay operational. As per the current RBI guidelines, lenders are required to keep a portion of the NDTL in the form of liquid assets as SLR.
- Repo Rate: The Repo Rate is the interest rate at which commercial banks borrow money from the RBI. Usually, banks sell their current securities and bonds to the RBI and get a short-term loan with an agreement to repurchase them at a pre-set rate at the end of a specified period.
- Reverse Repo Rate : The Reverse Repo Rate is the rate at which the Reserve Bank of India borrows from commercial banks.
- Bank Rate : The bank rate is the interest rate against which the RBI provides long-term loans to commercial banks. It is another tool in the RBI's monetary policy that helps the apex bank steady the cash flow in the economy.
- Repo Rate is charged on short-term loans, whereas MSF is charged on overnight or emergency funds.
- Repo Rate is applicable for commercial banks, and MSF is applicable for eligible scheduled banks.
- In the case of Repo Rate, banks sell government securities against a repurchase agreement, but for MSF, banks sell the extra government securities to avail funds.
- When borrowing against the MSF rate, banks can use the SLR securities, which is not allowed when borrowing against the Repo Rate.
- MSF rate is always 0.25% higher than that of the Repo Rate.
*Terms and conditions apply
Bank Rate and the Marginal Standing Facility rate might sound similar to you though they are not the same. These rates can have major differences based on the lending and borrowing mechanisms of the country. Here are some differences between these two rates:
- The Marginal Standing Facility rate or MSF is the rate at which commercial banks can borrow funds instantly during urgencies by selling government securities held with them under the SLR (Statutory Liquidity Ratio). On the other hand, the Bank rate is the rate at which Indian commercial banks can borrow funds from the Reserve Bank of India.
- While obtaining funds at the bank rate, banks do not have to pledge securities with the RBI. While borrowing funds through MSF, banks are required to pledge government-approved securities with the RBI.
Obtaining funds via MSF is the last option left to commercial banks. On the other hand, obtaining funds via the bank rate is a preferred option for banks as it is less costly.
Marginal Standing Facility (MSF) - FAQs
Marginal Standing Facility rate or MSF rate is a facility by which commercial banks borrow funds from the Reserve Bank of India (RBI) in case of emergencies. MSF helps commercial banks gain liquidity within 24 hours. The current MSF rate in India is 5.75%.
The full form of MSF is Marginal Standing Facility. That is an emergency borrowing scheme intended for banks to borrow from the Reserve Bank of India in the event the inter-bank liquidity completely dries up. This scheme was launched by RBI while reforming the monetary policy in 2011-12.
The MSF rate is a penal interest rate imposed by the RBI on banks that have fully exhausted their borrowing limits under available assistance. It is set above the Repo Rate and serves as a safety net for banks facing liquidity shortages.
The MSF rate is 25 bps more than the repo rate of RBI as it provides higher liquidity support to the banks. Higher MSF rates will make borrowing more expensive from the banks, resulting in high-cost loans for the borrowers. To make the process of borrowing easier for the banks, the RBI has given flexible liquidity options to them. It has helped the banks to manage their short-term liquidity issues in a better way.
An increase in the MSF rate indirectly impacts borrowers. When the MSF rate rises, borrowing costs for banks and lenders increase, which can lead to higher loan interest rates. As a result, the availability of funds in the market may be affected, making loans relatively more expensive.
Banks can benefit from MSF in times of liquidity crunch. MSF allows banks to avail of sizeable funds from RBI, albeit at a rate higher than the Repo Rate. MSF also helps stabilise the volatility of the overnight interbank lending rates.
