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With reference to the Marginal Standing Facility (MSF) and Statutory Liquidity Ratio (SLR), consider the following statements:
1. MSF refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government
securities.
2. SLR is a tool for controlling liquidity in the domestic market via manipulating bank credit.
3. MSF is always fixed above the repo rate.
Which of the statements given above is/are correct?
1. MSF refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government
securities.
2. SLR is a tool for controlling liquidity in the domestic market via manipulating bank credit.
3. MSF is always fixed above the repo rate.
Which of the statements given above is/are correct?
- a)Only one statement
- b)Only two statements
- c)None of the Statements
- d)All the three Statements
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
With reference to the Marginal StandingFacility (MSF) and Statutory Li...
MSF (Marginal Standing Facility):
- MSF refers to the rate at which the scheduled banks can borrow funds overnight from the Reserve Bank of India (RBI) against government securities.
- It was introduced by the RBI in 2011 as a measure to control short-term liquidity in the banking system.
- The MSF rate is generally higher than the repo rate, which is the rate at which banks borrow from the RBI for short-term liquidity needs.
- Banks can borrow funds through MSF to meet their immediate liquidity requirements when they are unable to obtain funds from other sources.
- The borrowing limit under the MSF is a fixed percentage of the bank's Net Demand and Time Liabilities (NDTL).
SLR (Statutory Liquidity Ratio):
- SLR is a tool used by the RBI to control liquidity in the domestic market by regulating bank credit.
- It requires banks to maintain a certain percentage of their Net Demand and Time Liabilities (NDTL) in the form of specified liquid assets such as cash, gold, or government securities.
- The primary objective of SLR is to ensure the solvency of banks and to promote the development of the government securities market.
- By increasing or decreasing the SLR, the RBI can influence the amount of funds available for banks to lend, thereby controlling liquidity in the economy.
- Currently, the SLR is set at 18.00% of the NDTL.
Analysis of the Statements:
1. MSF refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government securities.
- This statement is correct. MSF allows banks to borrow funds from the RBI against government securities.
2. SLR is a tool for controlling liquidity in the domestic market via manipulating bank credit.
- This statement is correct. SLR regulates bank credit and is used by the RBI to control liquidity in the domestic market.
3. MSF is always fixed above the repo rate.
- This statement is correct. MSF rate is generally higher than the repo rate, ensuring that banks can borrow funds at a higher rate in case of immediate liquidity needs.
Therefore, all three statements are correct.
- MSF refers to the rate at which the scheduled banks can borrow funds overnight from the Reserve Bank of India (RBI) against government securities.
- It was introduced by the RBI in 2011 as a measure to control short-term liquidity in the banking system.
- The MSF rate is generally higher than the repo rate, which is the rate at which banks borrow from the RBI for short-term liquidity needs.
- Banks can borrow funds through MSF to meet their immediate liquidity requirements when they are unable to obtain funds from other sources.
- The borrowing limit under the MSF is a fixed percentage of the bank's Net Demand and Time Liabilities (NDTL).
SLR (Statutory Liquidity Ratio):
- SLR is a tool used by the RBI to control liquidity in the domestic market by regulating bank credit.
- It requires banks to maintain a certain percentage of their Net Demand and Time Liabilities (NDTL) in the form of specified liquid assets such as cash, gold, or government securities.
- The primary objective of SLR is to ensure the solvency of banks and to promote the development of the government securities market.
- By increasing or decreasing the SLR, the RBI can influence the amount of funds available for banks to lend, thereby controlling liquidity in the economy.
- Currently, the SLR is set at 18.00% of the NDTL.
Analysis of the Statements:
1. MSF refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government securities.
- This statement is correct. MSF allows banks to borrow funds from the RBI against government securities.
2. SLR is a tool for controlling liquidity in the domestic market via manipulating bank credit.
- This statement is correct. SLR regulates bank credit and is used by the RBI to control liquidity in the domestic market.
3. MSF is always fixed above the repo rate.
- This statement is correct. MSF rate is generally higher than the repo rate, ensuring that banks can borrow funds at a higher rate in case of immediate liquidity needs.
Therefore, all three statements are correct.
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Community Answer
With reference to the Marginal StandingFacility (MSF) and Statutory Li...
- Statutory Liquidity Ratio: The statutory liquidity ratio refers to that proportion of total deposits which the commercial banks are required to keep with themselves in a liquid form. Commercial banks generally make use of this money to purchase government securities. Thus, the statutory liquidity ratio, on the one hand, is used to siphon off the excess liquidity of the banking system, and on the other, it is used to mobilize revenue for the government. SLR is a tool for controlling liquidity in the domestic market via manipulating bank credit. Hence statement 2 is correct.
- Marginal Standing Facility: Marginal Standing Facility (MSF) rate refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government securities. MSF is a very short-term borrowing scheme for scheduled commercial banks. Banks may borrow funds through MSF during severe cash shortage or acute shortage of liquidity. Hence statement 1 is correct.
- The MSF is the last resort for banks once they exhaust all borrowing options including the liquidity adjustment facility by pledging through government securities, which have a 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. The scheme has been introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system.
- MSF, being a penal rate, is always fixed above the repo rate. The MSF would be the last resort for banks once they exhaust all borrowing options including the liquidity adjustment facility by pledging government securities, where the rates are lower in comparison with the MSF. Hence statement 3 is correct. o MSF represents the upper band of the interest corridor with repo rate at the middle and reverse repo as the lower band.
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With reference to the Marginal StandingFacility (MSF) and Statutory Liquidity Ratio(SLR), consider the following statements:1. MSF refers to the rate at which thescheduled banks can borrow fundsovernight from RBI against governmentsecurities.2. SLR is a tool for controlling liquidity in the domestic market via manipulatingbank credit.3. MSF is always fixed above the reporate.Which of the statements given above is/arecorrect?a)Only one statementb)Only two statementsc)None of the Statementsd)All the three StatementsCorrect answer is option 'D'. Can you explain this answer?
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With reference to the Marginal StandingFacility (MSF) and Statutory Liquidity Ratio(SLR), consider the following statements:1. MSF refers to the rate at which thescheduled banks can borrow fundsovernight from RBI against governmentsecurities.2. SLR is a tool for controlling liquidity in the domestic market via manipulatingbank credit.3. MSF is always fixed above the reporate.Which of the statements given above is/arecorrect?a)Only one statementb)Only two statementsc)None of the Statementsd)All the three StatementsCorrect answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about With reference to the Marginal StandingFacility (MSF) and Statutory Liquidity Ratio(SLR), consider the following statements:1. MSF refers to the rate at which thescheduled banks can borrow fundsovernight from RBI against governmentsecurities.2. SLR is a tool for controlling liquidity in the domestic market via manipulatingbank credit.3. MSF is always fixed above the reporate.Which of the statements given above is/arecorrect?a)Only one statementb)Only two statementsc)None of the Statementsd)All the three StatementsCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With reference to the Marginal StandingFacility (MSF) and Statutory Liquidity Ratio(SLR), consider the following statements:1. MSF refers to the rate at which thescheduled banks can borrow fundsovernight from RBI against governmentsecurities.2. SLR is a tool for controlling liquidity in the domestic market via manipulatingbank credit.3. MSF is always fixed above the reporate.Which of the statements given above is/arecorrect?a)Only one statementb)Only two statementsc)None of the Statementsd)All the three StatementsCorrect answer is option 'D'. Can you explain this answer?.
With reference to the Marginal StandingFacility (MSF) and Statutory Liquidity Ratio(SLR), consider the following statements:1. MSF refers to the rate at which thescheduled banks can borrow fundsovernight from RBI against governmentsecurities.2. SLR is a tool for controlling liquidity in the domestic market via manipulatingbank credit.3. MSF is always fixed above the reporate.Which of the statements given above is/arecorrect?a)Only one statementb)Only two statementsc)None of the Statementsd)All the three StatementsCorrect answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about With reference to the Marginal StandingFacility (MSF) and Statutory Liquidity Ratio(SLR), consider the following statements:1. MSF refers to the rate at which thescheduled banks can borrow fundsovernight from RBI against governmentsecurities.2. SLR is a tool for controlling liquidity in the domestic market via manipulatingbank credit.3. MSF is always fixed above the reporate.Which of the statements given above is/arecorrect?a)Only one statementb)Only two statementsc)None of the Statementsd)All the three StatementsCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With reference to the Marginal StandingFacility (MSF) and Statutory Liquidity Ratio(SLR), consider the following statements:1. MSF refers to the rate at which thescheduled banks can borrow fundsovernight from RBI against governmentsecurities.2. SLR is a tool for controlling liquidity in the domestic market via manipulatingbank credit.3. MSF is always fixed above the reporate.Which of the statements given above is/arecorrect?a)Only one statementb)Only two statementsc)None of the Statementsd)All the three StatementsCorrect answer is option 'D'. Can you explain this answer?.
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