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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 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 MSF rates are typically 0.25%, or 25 basis points higher than 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). At its conception, in 2011, the initial MSF interest rate was 100 basis points higher than the repo rate. What followed in 2013 was another hike, wherein the RBI increased the MSF rate by 300 basis points, or 3% to manage the downward valuation of the Rupee. It was only in a later amendment that the rate was reduced by 50 basis points, making borrowing more feasible for financial institutions.

The MSF 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 5.40% 4 May 2022
Marginal Standing Facility 4.65% 4 May 2022

Here are a few terms associated with 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

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