Module: | Priority Sector, Consumer Protection & Digital Lending
Q70: Generally, pledging SLR securities to borrow money reduces a bank's SLR compliance. However, there is a specific facility under which banks are permitted to "dip" into their SLR portfolio up to a certain limit to borrow funds without attracting a default penalty. What is this facility called?
✅ Correct Answer: B
The correct answer is B. The Marginal Standing Facility (MSF) is a special penal-rate window created by the RBI for banks to borrow overnight funds in an emergency situation when inter-bank liquidity dries up completely.
The unique feature of MSF is that it explicitly permits banks to "dip" into their mandatory Statutory Liquidity Ratio (SLR) portfolio up to a prescribed limit (e.g., 2% of NDTL). Pledging these securities under MSF is a legally permitted exception and does not trigger an SLR maintenance default penalty.
Option A (LAF Repo) does not allow this; pledging SLR securities in a normal repo transaction renders them encumbered and results in an SLR shortfall.
Options C and D serve completely different monetary policy functions and do not grant SLR dipping exemptions.
The unique feature of MSF is that it explicitly permits banks to "dip" into their mandatory Statutory Liquidity Ratio (SLR) portfolio up to a prescribed limit (e.g., 2% of NDTL). Pledging these securities under MSF is a legally permitted exception and does not trigger an SLR maintenance default penalty.
Option A (LAF Repo) does not allow this; pledging SLR securities in a normal repo transaction renders them encumbered and results in an SLR shortfall.
Options C and D serve completely different monetary policy functions and do not grant SLR dipping exemptions.