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.
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.