General Awareness play a vital role in all Examination. we can expect Questions from different Topics.In Banking and other competitive exams like RRB, CDS, LIC AO, RBI, SSC, UPSC, FCI, UIIC, OICL, SBI Clerks and PO the questions on Marginal Standing Facility are being asked. Here we have given Banking awareness study notes on : Marginal Standing Facility for SSC CGL Examinations 2019-20 & other examination. Candidates those who are all preparing for the Examination can use this study material.
Marginal Standing Facility (MSF) is a new scheme announced by the Reserve Bank of India (RBI) in its Monetary Policy (2011-12) and refers to the penal rate at which banks can borrow money from the central bank over and above what is available to them through the LAF window.
MSF, being a penal rate, is always fixed above the repo rate. The MSF would be the last resort for banks once they exhaust all borrowing options including the liquidity adjustment facility by pledging government securities, where the rates are lower in comparison with the MSF. The MSF would be a penal rate for banks and the banks can borrow funds by pledging government securities within the limits of the statutory liquidity ratio. The scheme has been introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system.
MSF represents the upper band of the interest corridor with repo rate at the middle and reverse repo as the lower band.
To balance the liquidity, RBI uses the sole independent “policy rate” which is the repo rate (in the LAF window) and the MSF rate automatically gets adjusted to a fixed per cent above the repo rate (MSF was originally intended to be 1% above the repo rate). MSF is at present aligned with the Bank rate. Under Section 49 of the Reserve Bank of India Act, 1934, the Bank Rate has been defined as “the standard rate at which the Reserve Bank is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase under the Act. On introduction of Liquidity Adjustment Facility (LAF), discounting/rediscounting of bills of exchange by the Reserve Bank has been discontinued. As a result, the Bank Rate became dormant as an instrument of monetary management. It is now aligned to MSF rate and is used only for calculating penalty on default in the maintenance of cash reserve ratio(CRR) and the statutory liquidity ratio (SLR).
The facility can be availed by different commercial banks for a minimum amount of Rs. 1 crore and in multiples of 1 crore thereafter. For the MSF, interest rate was fixed at 100 basis points( 1 basis point is one-hundreth of a percentage point) above the repo rate, which is the rate at which commercial banks borrow from RBI. So, under tight liquidity conditions bank borrow from RBI at a rate higher than the repo rate as per the liquidity adjustment faciltiy or LAF.
Tenor and Amount
Under the facility, the eligible entities can avail overnight, up to one per cent of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of the second preceding fortnight. But for the intervening holidays, the MSF facility will be for one day except on Fridays when the facility will be for three days or more, maturing on the following working day. In the event, the banks™ SLR holdings fall below the statutory requirement up to one per cent of their NDTL, banks will not have the obligation to seek a specific waiver for default in SLR compliance arising out of use of this facility in terms of notification issued under sub section (2A) of Section 24 of the Banking Regulation Act, 1949
The Facility will be available on all working days in Mumbai, excluding Saturdays between 3.30 P.M. and 4.30 P.M.
Rate of Interest
The rate of interest on amount availed under this facility will be 100 basis points above the LAF repo rate, or as decided by the Reserve Bank from time to time
Minimum request size
Requests will be received for a minimum amount of Rs. One crore and in multiples of Rs. One crore thereafter.
A margin of five per cent will be applied in respect of GoI dated securities and Treasury Bills. In respect of SDLs, a margin of 10 per cent will be applied. Thus, the amount of securities offered on acceptance of a request for Rs.100 will be Rs.105 (face value) of GoI dated securities and Treasury.
Settlement of Transactions
The settlement of all applications received under the MSF Scheme will take place on the same day after the closure of the window for acceptance of applications.
Mechanics of operations
i) The requests will be submitted electronically in the Negotiated Dealing System (NDS). Eligible members facing genuine system problem on any specific day, may submit physical requests in sealed cover in the box provided in the Mumbai Office, Reserve Bank of India, to the Manager, Reserve Bank of India, Securities Section, Public Accounts Department (PAD), Mumbai Office by 4.30 P.M.
ii) The NDS provides for submission of single or multiple applications by the member. However, as far as possible only one request should be submitted by an applicant.
iii) The MSF will be conducted as “Hold-in-Custody” repo, similar to LAF – Repo.
iv) On acceptance of MSF requests, the applicant™s RC SGL Account will be debited by the required quantum of securities and credited to Bank™s RC SGL Account.
Accordingly, the applicant™s current account will be credited with the MSF application amount. The transactions will be reversed in the second leg. In case the second leg falls on a holiday, the reversal date will be the next working day.
v) The MSF transactions between Reserve Bank and counter parties which would involve operation of the RC SGL Account would not require separate SGL forms.
vi) Pricing of all securities including Treasury Bills will be at face value for MSF operations by Reserve Bank. Accrued interest as on the date of transaction will be ignored for the purpose of pricing of securities.