RAS question
Under MSF, banks can borrow by dipping into their SLR portfolio up to:
Correct answer: (C) 2% of NDTL.
Under the Marginal Standing Facility, banks can borrow overnight by dipping into their SLR portfolio up to 2 per cent of their Net Demand and Time Liabilities.
Explanation
The Marginal Standing Facility is an overnight liquidity window for banks, with a specific SLR-dipping limit attached to it. Banks may borrow overnight under MSF by using their statutory liquidity ratio portfolio up to 2 per cent of Net Demand and Time Liabilities. The Reserve Bank of India records that a pandemic-period relaxation had allowed banks to use an additional one per cent of NDTL, taking the temporary cumulative limit to 3 per cent, but from January 1, 2022 banks were again allowed to dip up to 2 per cent of NDTL for overnight borrowing under MSF.
Why the other options are wrong
- (A) 3 per cent of NDTL was the temporary pandemic-period cumulative limit after an additional one per cent relaxation, not the restored MSF limit.
- (B) 1 per cent refers to the additional relaxation that once raised the cumulative MSF limit to 3 per cent, not the total permissible SLR-dipping limit.
- (D) 5 per cent of NDTL is inconsistent with the RBI chronology, under which the relevant restored limit was 2 per cent.
Concept
MSF limits belong to the monetary policy and banking-liquidity instruments part of the Indian Economy syllabus. RAS repeatedly asks such limits because small changes in RBI liquidity tools alter the tested fact.