WBCS.LIVE practice question

What is the specific 'penal rate' at which RBI lends money to banks against securities in case of an emergency?

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. Repo Rate
  2. Bank Rate
  3. Marginal Standing Facility
  4. Cash Reserve Ratio

Correct answer and explanation

Correct answer: Marginal Standing Facility

Explanation: āœ… Correct Answer: C) Marginal Standing Facility (MSF) šŸ“š Explanation: The Marginal Standing Facility (MSF) is a window for banks to borrow from the RBI in an emergency when inter-bank liquidity dries up. Banks can borrow overnight up to a certain limit of their NDTL by dipping into their SLR quota. The MSF rate is usually 25 basis points (0.25%) higher than the Repo Rate and acts as a penal rate.