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What do you understand by the Marginal Standing Facility?

1. Rate of interest which is levied on short-term loans taken by commercial banks from RBI.
2. Marginal Standing Facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.
3. The amount a commercial bank needs to maintain in the form of cash, gold, or government-approved securities before providing credit to its customers.
4. It is defined in Section 49 of the RBI Act, 1934, as the standard rate at which RBI is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase under this Act.

Correct answer: Marginal Standing Facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.

Solution

Marginal Standing Facility is an emergency borrowing window provided by the RBI to scheduled banks. It is used when inter-bank liquidity is unavailable or insufficient. Therefore, option B is correct.

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