Q. With reference to the Marginal Standing Facility (MSF), consider the following statements:
1.The MSF window is primarily used by commercial banks to avail funds from the RBI during unexpected liquidity shocks, even if they have no eligible collateral.
2.Banks can borrow funds under the MSF by pledging a specific percentage of their Statutory Liquidity Ratio (SLR) mandated securities.
Which of the statements given above is/are correct?
Answer: B
Notes:
Explanation:
Statement 1: Incorrect. MSF is an emergency, overnight liquidity window. Banks must pledge eligible collateral (Government Securities) to avail funds. The term “even if they have no eligible collateral” makes this statement incorrect.
Statement 2: Correct. Under the MSF, banks are permitted to pledge a specified portion of their mandated Statutory Liquidity Ratio (SLR) securities up to a certain limit (e.g., 2% of NDTL) to borrow from the RBI. This allows them to use their otherwise locked-in SLR assets during an emergency.
