About MSF

• Marginal Standing Facility (MSF) is the rate at which the banks are able to borrow overnight funds from RBI against the approved government securities.
• MSF is a very short term borrowing scheme for banks. Banks may borrow funds through MSF during severe cash shortage or acute shortage of liquidity. 
• The scheme was introduced by RBI with the main aim of reducing volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system. 

• • In March 2020, the RBI increased the cap for liquidity available under the marginal standing facility, from 2 per cent to 3 per cent of their Net Demand and Time Liabilities (NDTL) — or deposits. 
• MSF rate is also known as the penal rate and it is always fixed above the repo rate.
• The marginal standing facility rate currently stands at 4.25 per cent.

Why in News?

• Amid the ongoing economic woes created by the coronavirus pandemic, the RBI has decided to extend by six months the enhanced borrowing facility provided to banks under Marginal Standing Facility till March 31, 2021.
• The facility, which was initially available up to June 30, 2020 was later extended up to September 30, 2020 in view of the disruptions caused by the COVID-19 pandemic.

Reference:

1. https://www.livemint.com/industry/banking/rbi-extends-enhanced-borrowing-limit-for-banks-under-msf-till-31-march-11601308676329.html