On which rate base, overnight money is needed by bank from RBI?

a. MSF

b. Repo rate

c. Reverse repo

d. Bank rate

ANSWER: MSF

Explanation:

Marginal Standing Facility (MSF) rate refers to the rate at which the 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.

The RBI had introduced the marginal standing facility (MSF) in its Monetary Policy (2011-12).

MSF came into effect on from May 9, 2011.

Banks used the facility for the first time in June 2011 and borrowed Rs.1 billion via the MSF.