The Reserve Bank of India (RBI) has decided to continue with the marginal standing facility (MSF) relaxation for a further period of six months up to March 31, 2021.

This is aimed at providing comfort to banks on their liquidity requirements as also to enable them to continue to meet LCR (liquidity coverage ratio) requirements.

On March 27, 2020 banks were allowed to avail of funds under MSF by dipping into the Statutory Liquidity Ratio (SLR) by up to an additional one per cent of their deposits or net demand and time liabilities (NDTL), cumulatively up to 3 per cent of NDTL.

This facility, which was initially available up to June 30, 2020, was extended on June 26, 2020 up to September 30, 2020, in view of disruptions imposed by Covid-19.

Under MSF, all scheduled commercial banks can avail of overnight funds. But for the intervening holidays, the MSF facility is for one day except on Fridays when the facility is for three days or more, maturing on the following working day.

The rate of interest on amount availed under this facility is 4.25 per cent or 25 basis points (bps) above the current policy repo rate of 4 per cent.

Access to funds

The RBI said this dispensation provides increased access to funds to the extent of ₹1.49 lakh crore, and also qualifies as high-quality liquid assets (HQLA) for the Liquidity Coverage ratio (LCR).

LCR promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient high quality liquid assets HQLAs to survive an acute stress scenario lasting for 30 days.

SLR is the slice deposits that Banks have to invest in central and state government securities. This ratio is currently at 18 per cent of deposits.

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