Q. In context with Banking in India, what is the difference between liquidity adjustment facility-repo rate and marginal standing facility rate ?
- Under Repo rate banks can borrow above SLR Requirements, under MSF, Banks can borrow within SLR requirements
- Under Repo, banks can borrow up to 5% of net demand and time liabilities, under MSF, they can borrow up to no limit
Choose the correct option:
Answer:
Only 1 is correct
Notes:
- Correct - Under repo rate, banks can borrow funds above their SLR requirements from the RBI. Under marginal standing facility (MSF), banks can borrow funds within their SLR requirements.
- Incorrect - Under repo, banks can borrow up to a certain percentage of their NDTL from RBI. Under MSF there is no limit, banks can borrow as much as they want provided they have adequate SLR securities.
So statement 1 clearly differentiates between repo rate and MSF in terms of SLR requirements. Statement 2 is incorrect regarding the limits on borrowing under repo and MSF.