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Q31 (IAS/2014) Economy › Money, Banking & Inflation › Monetary policy tools Official Key

The terms 'Marginal Standing Facility Rate' and 'Net Demand and Time Liabilities', sometimes appearing in news, are used in relation to

Result
Your answer: —  ·  Correct: A
Explanation

Both terms mentioned in the question are directly related to banking operations in India. Marginal Standing Facility (MSF) was introduced by RBI in 2011[1], and it is an interest rate at which the Reserve Bank of India lends money to scheduled commercial banks facing acute liquidity shortages[2]. All scheduled commercial banks having current account with RBI can avail MSF, and they can avail an overnight short-term loan up to 2 per cent of their Net Demand and Time Liabilities[1]. Net Demand and Time Liabilities (NDTL) = DTL - Assets of the bank with other banks[3]. These are technical banking terms used by the RBI as part of its monetary policy framework to manage liquidity in the banking system. Therefore, option A is correct.

Sources
  1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > LONG TERM REPO OPERATIONS (LTROs) > p. 166
  2. [3] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > LIABILITIES OF A BANK > p. 164
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Q. The terms 'Marginal Standing Facility Rate' and 'Net Demand and Time Liabilities', sometimes appearing in news, are used in relation to …
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Origin: Books + Current Affairs Fairness: Low / Borderline fairness Books / CA: 2.5/10 · 7.5/10
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Statement 1
Are the terms "Marginal Standing Facility Rate" and "Net Demand and Time Liabilities" used in relation to banking operations?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > LONG TERM REPO OPERATIONS (LTROs) > p. 166
Presence: 5/5
“Marginal Standing Facility (MSF): This facility was introduced by RBI in 2011. Eligibility: All the SCBs having current account with RBI can avail MSF. They can avail an overnight short-term loan up to 2 per cent of their Net Demand and Time Liabilities.”
Why this source?
  • Defines Marginal Standing Facility (MSF) as an RBI facility for scheduled commercial banks to borrow overnight funds.
  • Explicitly links the MSF borrowing limit to a percentage of Net Demand and Time Liabilities (NDTL).
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > LIABILITIES OF A BANK > p. 164
Presence: 5/5
“Total Demand and Time Liabilities (DTL) includes items mentioned in 1, 2 and 3 above. Net Demand and Time Liabilities (NDTL) = DTL - Assets of the bank with other banks. Assets of the bank include assets of the banks with other banks, advances by bank, investments by bank and money at call and short notice.”
Why this source?
  • Gives the definition/formula for Net Demand and Time Liabilities (NDTL), showing it is a bank liability metric.
  • Shows NDTL is computed from bank demand and time liabilities and inter-bank assets—clearly a banking concept.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the major instruments/tools that RBI uses for conducting its monetary policy: > p. 61
Presence: 5/5
“Marginal Standing Facility (MSF): It is a facility introduced in 2011, under which scheduled commercial banks can borrow additional amount of overnight money (over and above what is available to them through repo rate) from the Reserve Bank by dipping into their SLR portfolio up to a limit (2%) at a penal rate of interest. This provides a safety valve against unanticipated liquidity shocks to the banking system. When banks take loan from RBI at Repo rate, banks need to keep Govt. Securities with RBI, but this security is in addition to the requirement under SLR. Banks cannot keep SLR securities to avail loan from RBI at Repo Rate.”
Why this source?
  • Describes MSF as a facility (introduced 2011) allowing scheduled commercial banks to borrow overnight by dipping into SLR—an operational banking mechanism.
  • Frames MSF as a safety valve for liquidity shocks to the banking system, tying the term to bank operations and RBI policy.
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