Marginal Standing Facility (MSF) was introduced by the RBI in May 2001 for providing a window for commercial banks to borrow money from it in an emergency situation when interbank liquidity dries up completely. Basically, banks can borrow money overnight from the Reserve Bank when the overnight interest rate shows volatility. The difference between the MSF and the repo rate is that MSF is used only in emergency situations as given above. The RBI does this to control interest rate volatility by allowing commercial banks to borrow against government securities at a higher rate than the prevailing repo rate (1 percentage point higher). Another difference with the repo rate is that banks can pledge government securities from the SLR quota up to 1% under the MSF. Then, even if the SLR comes below 21.5%, banks need not pay any penalty under MSF.
Under the MSF, banks can borrow money up to 1% of their net demand and time liabilities (NDTL). The minimum amount for which RBI receives application is Rs.1 Crore, and afterwards in multiples of Rs.1 Crore.