MSF was introduced by RBI in 2011, where banks can borrow from RBI when there is a considerable shortfall of liquidity.
MSF rate refers to the rate at which the scheduled banks can borrow fund overnight from RBI against government securities.
For this facility all scheduled commercial bank must have current account and SGL Account with Reserve Bank of India.
Only scheduled commercial banks are eligible under MSF.
Rate of Interest
The rate of interest on amount availed under MSF will be 100 basis points above the LAF repo rate, or as decided by the Reserve Bank from time to time.
MSF is now placed at 0.5% above the Repo Rate.
Minimum request size
Requests will be received for a minimum amount of Rs. One crore and in multiples of Rs. One crore thereafter.
MSF will be undertaken in all SLR-eligible transferable Government of India (GoI) dated Securities/Treasury Bills and State Development Loans (SDL).
Who can burrow?
Only scheduled commercial banks can borrow under this window.
Banks can burrow maximum 0.75% of NTDL (Net Demand and Time Liabilities).
The MSF would be the last resort for banks once they exhaust all borrowing options including the liquidity adjustment facility by pledging through government securities, which has lower rate (i.e. repo rate) of interest 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 (SLR).