The Marginal Standing Facility (MSF) is a monetary policy scheme and instrument introduced by the Reserve Bank of India (RBI). It functions as an overnight emergency borrowing window for scheduled commercial banks. The MSF was introduced as part of the monetary policy reforms for 2011-12, becoming effective on May 9, 2011. Its purpose was to reduce volatility in overnight lending rates in the inter-bank market and provide a safety valve for banks facing a sudden, severe liquidity shortage after exhausting their regular borrowing options.
Under the MSF, banks can borrow overnight funds from the RBI by pledging government securities. A key provision is that banks are permitted to dip into their Statutory Liquidity Ratio (SLR) portfolio for collateral, up to a limit, without incurring a penalty. The maximum borrowing limit is currently a percentage of the bank's Net Demand and Time Liabilities (NDTL), which has been revised over time, with a maximum of 3%. The borrowing is done at the MSF Rate, which is a penal rate.
The MSF is a crucial component of the RBI's Liquidity Adjustment Facility (LAF) framework. It connects directly to the Repo Rate and the Standing Deposit Facility (SDF), as the three rates form the interest rate corridor. The MSF Rate acts as the ceiling of this corridor, while the SDF Rate acts as the floor. A significant recent change is the spread between the MSF Rate and the Repo Rate: historically, the MSF Rate was pegged 100 basis points (1%) above the Repo Rate. However, as of the April 2026 Monetary Policy Committee (MPC) decision, the MSF Rate (5.50%) is set just 25 basis points above the Repo Rate (5.25%), a narrower spread that has become the norm.