In line with the annual credit policy announcement last week, the Reserve Bank of India has unveiled the guidelines for the Marginal Standing Facility (MSF) to help banks tide over short-term liquidity problems.

The central bank said in a notification that this facility will be effective today.

As per the guidelines, a bank can borrow up to 1 per cent of their total deposits from the RBI under the MSF at a rate which is 100 basis points higher than the short-term lending (repo) rate.

The repo rate, which was increased last week by 50 basis points, stands at 7.25 per cent. As such, the rate charged under the MSF would be 8.25 per cent.

The facility is expected to contain volatility in the overnight inter-bank market. The call money rate was about 6.75 per cent during the afternoon trading session.

“Under the facility, eligible entities can avail overnight up to 1 per cent of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of the second preceding fortnight,” it said.

The notification further said that requests will be received for a minimum amount of Rs 1 crore and in multiples of Rs 1 crore thereafter.

In the event the banks’ SLR (Statutory Liquidity Ratio) holdings fall below the statutory requirement on account of the use of this facility, banks will not have the obligation to seek a specific waiver for any default in SLR compliance, subject to a ceiling of 1 per cent of their NDTL.

SLR is the percentage of total deposits kept in government securities and other specified instruments. Currently, the SLR requirement is 24 per cent.

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