Under which of the following rates can scheduled commercial banks borrow funds overnight from the Reserve Bank of India?
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. Marginal Standing Facility.
Marginal Standing Facility
- It is a window provided by the Reserve Bank of India (RBI) for banks to borrow overnight funds at a higher interest rate than the repo rate.
- It is a short-term borrowing scheme where banks can borrow against their Statutory Liquidity Ratio (SLR) holdings at a penal rate of interest.
Other terms:
Repo Rate: The rate at which RBI lends money to commercial banks for short-term needs, typically using government securities as collateral.
Reverse Repo Rate: The rate at which RBI borrows money from commercial banks.
Bank Rate: The rate at which RBI discounts eligible bills of exchange and promissory notes, also used for long-term lending.
Cash Reserve Ratio: It is the percentage of a bank's total deposits that it must keep as reserves with the RBI. Currently, the CRR is 4.00% in India.