Category Archives: Finance

Why MSF is aligned to bank rate or vice versa?

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MSF – Marginal standing facility is a window for banks to borrow from Reserve Bank of India in emergency situation when inter-bank liquidity dries up completely.

Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility or LAF in short.(which is 1% More than repo rate currently)
msf is aligned with the bank rate because both are penal rates for breaching the slr and crr limits.

Also msf is useful bcoz repo operations are available for only limited period during s day..which is not so for msf.. In which case the banks are permitted to borrow under msf in lieu of whatever excessive slr they have.

So,
1) if slr =22.50% this means- Borrowing allowed under MSF= 2% of NDTL
2) If SLR<22.50% This means borrowing allowes under MSF = 2% Of NDTL( kindly check it from other sources..not sure)
3) If SLR >22.50% Then Borrowing Allowed under MSF is 5% of NDTL.


What is this fiscal deficit all about?

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Fiscal Deficit is nothing but total expenditures exceeding the revenue that a government generates.

In an ideal financial system, which has a balanced fiscal deficit, the cost of expenditure is low while production and growth is advancing. But when there is an increase in fiscal deficit it means that the government is spending too much while it is earning less.

Hence, it is important that the government keeps its expenses under control.

Government deficit or surplus is the difference between government receipts (mainly tax revenue) and government spending (i.e. salaries of government employees, social benefits, interest on the public debt) in a single year.

A deficit occurs when the outlays of a government exceed the inlays; a surplus is when revenues are higher than expenditure. This ratio is usually presented as a percent of gross domestic product (GDP).