MSF Full Form

MSF full form is Marginal Standing Facility. The MSG is a scheme that was announced by the Reserve Bank of India (RBI) which allows some scheduled banks to borrow required funds from RBI against approved government securities. It is considered a penal rate at which scheduled banks borrow money from RBI but banks borrow money with interest above the repo rate which is termed as the Marginal Standing Facility rate.

What is the Full Form of MSF?

As mentioned above the full form of MSF is Marginal Standing Facility. The term refers to a facility under which scheduled banks registered under commercial can borrow additional overnight funds beyond what is available in the LAF (Liquidity Adjustment Facility) window can be borrowed by the central bank using Liquidity Ratio (SLR) data, up to a limit. The MSF works as a window for the banks which allows them to borrow money from RBI during insufficient money in banks. 

How MSF Works? 

The MSF rates range from 0.25% to 25 points which is higher than the repo rate. The banks or any financial institution can only receive 1 % of SLR securities and time liabilities which is termed as NDTL by the MSF scheme. The scheme was first proposed in the year 2011 and during that time MSF interest rate was 100 basis higher than the repo rate and by the year 2013 RBI increased the rates by 300 basis points but it was again lowered to 50 basis points.

What are the Objectives of MSF?

The MSF scheme was proposed by the RBI to reduce the transitory of overnight lending prices or rates in the interbank market which results in smooth operations in the financial system.

What is the Current Rates for MSF and Repo?

What is the Difference Between MSF & Repo Rate?

The main difference between MSF and Repo Rate is that MSF is used only in emergencies when bank don't have sufficient funds for running. MSF interest rate is controlled by RBI which allows banks to borrow only after accepting terms and agreeing on borrowing money at high rates than the repo rate. But in terms of repo rate, the amount is fixed. Another major difference is that with the repo rate banks can commit govt. Securities from SLR quota which is up to 1% under the MSG scheme and even if the SLR quota comes down around 21.5 % banks are not required to pay the penalty mentioned under the scheme MSF. 

What is the Difference Between Bank & MSF Rates?

The major difference is that every commercial bank can take loans when needed as per bank interest rate but MSF is given only to scheduled commercial banks. All commercial banks and other financial banks can take loans from RBI according to bank rates but the MSF scheme is also applicable to scheduled commercial banks which have their own current account & Subsidiary General Ledger (SGL) with the Reserve Bank of India.

Terms that are related to MSF

Below mentioned are some mostly used terms in relation to the MSF scheme:

1. Net Time & Demand Liabilities (NTDL)

It's a combination of two liabilities which is time & deposit that banks hold towards the customers, The term demand liabilities consists of all the liabilities that are payable on the demand. Basically, the time liabilities are liabilities that are required to be paid on completion of the given period. 

2. Statutory Liquidity Ratio (SLR)

The term refers to the reserved liquid assets that are used by commercial Indian banks, as they need to maintain approved govt. securities or gold assets with the help of liquid cash before offering loans to customers or borrowers. The SLR of banks are determined by calculating the ratio of demand and time liabilities.

3. Repo Rate

It is a rate of Interest set by RBI for providing funds to commercial banks facing problems of insufficient funds. The RBI increases Repo Rate which makes the funds expensive and also restricts buying behavior. 

4. Reverse Repo Rate 

The term is used when the bank & lenders have a surplus of funds with them during that situation they can even lend money to the central Bank. The rates are pre-decided by RBI.

5. Bank Rate 

It refers to the rate at which the RBI offers long-term loans to banks unlike Repo Rate which is also applicable over short-term loans.

Interesting Facts about MSF

• Banks have to borrow money by pledging govt. securities at higher rates than the repo rate mentioned in the Liquidity Adjustment Facility (LAF).
• The MSF rate is fixed at 100 basis points or percent above the repo rate. 
• Under the MSF scheme banks can borrow money up to 1 % of banks net demand & time liabilities (NDTL).
• Banks can borrow funds through the MSF scheme on all days except Sunday. 
• The RBI receives applications of a minimum amount of INR 1 crore or in multiples of INR 1 Crore from the banks. 
• MSF also provides safety value against the unexpected liquidity to the baking system.

Written By: 

Deepit Mathur