Amid the ongoing economic woes created by the coronavirus pandemic, the Reserve Bank has decided to extend the enhanced borrowing facility provided to the banks to meet their liquidity shortages till September 30. The RBI, as a temporary measure, had increased the borrowing limit of scheduled banks under the marginal standing facility (MSF) scheme from 2 per cent to 3 percent of their Net Demand and Time Liabilities (NDTL) with effect from March 27, 2020.
What
  1. Under the MSF, banks can borrow overnight funds at their discretion by dipping into the Statutory Liquidity Ratio (SLR). This relaxation, which was granted till June 30, 2020, has now been extended till September 30.
  2. On a review, it has now been decided to extend this enhanced limit till September 30, 2020, the Reserve Bank of India (RBI) said in a circular.
  3. Banks may continue to access overnight funds under the MSF against their excess SLR holding. The marginal standing facility rate currently stands at 4.25 per cent.
  4. The RBI has also extended the relaxation on the minimum daily maintenance of the Cash Reserve Ratio (CRR) at 80 per cent for a further period of three months till September 25, 2020.
  5. On March 27, the minimum daily maintenance of the CRR was reduced from 90 per cent of the prescribed CRR to 80 per cent till June 26, 2020. 
  6. This was done in view of the continuing of hardships faced by banks in terms of social distancing of staff and consequent strains on reporting requirements.
Flashback
  1. Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.
  2. Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility or LAF in short. 
  3. The MSF rate is pegged 100 basis points or a percentage point above the repo rate. 
  4. Under MSF, banks can borrow funds up to one percent of their net demand and time liabilities (NDTL).