What is Marginal Standing Facility - msf ? What is MSF?

Define Marginal Standing Facility in India

What is Marginal Standing Facility ? / Definition of Marginal Standing Facility - RBI  (we give below details in plain language for non bankers) :-

RBI in its Monetary Policy announced on 03rd May, 2011 that it will soon be introducing Marginal Standing Facility (MSF).  Later on RBI announced that MSF scheme has become effective from 09th May, 2011. 

Marginal Standing Facility Rate :  Under this scheme, Banks will be able to borrow upto 1% of their respective Net Demand and Time Liabilities".  The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%)  above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.

In the policy statement RBI has also declared "The stance of monetary policy is, among other things, to manage liquidity to ensure that it remains broadly in balance, with neither a large surplus diluting monetary transmission nor a large deficit choking off fund flows."

What is Marginal Standing Facility - RBI circular ? (The below details are for Bankers, who needs the technical language):-

The Marginal Standing Facility Scheme has been introduced on the lines of the existing Liquidity Adjustment Facility – Repo Scheme (LAF – Repo).  The salient features of the Scheme are as under: 1. Effective Date This facility will be effective from May 9, 2011. 2. Eligibility All Scheduled Commercial Banks having Current Account and SGL Account with Reserve Bank, Mumbai will be eligible to participate in the MSF Scheme. 3. Tenor and Amount Under the facility, the eligible entities can avail overnight, up to one per cent of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of the second preceding fortnight. But for the intervening holidays, the MSF facility will be for one day except on Fridays when the facility will be for three days or more, maturing on the following working day. In the event, the banks’ SLR holdings fall below the statutory requirement up to one per cent of their NDTL, banks will not have the obligation to seek a specific waiver for default in SLR compliance arising out of use of this facility in terms of notification issued under sub section (2A) of Section 24 of the Banking Regulation Act, 1949. 4. Timing The Facility will be available on all working days in Mumbai, excluding Saturdays between 3.30 P.M. and 4.30 P.M. 5. Rate of Interest The rate of interest on amount availed under this facility will be 100 basis points above the LAF repo rate, or as decided by the Reserve Bank from time to time. 6. Discretion to Reserve Bank The Reserve Bank will reserve the right to accept or reject partially or fully, the request for funds under this facility. 7. Mechanics of operations i) The requests will be submitted electronically in the Negotiated Dealing System (NDS). Eligible members facing genuine system problem on any specific day, may submit physical requests in sealed cover in the box provided in the Mumbai Office, Reserve Bank of India, to the Manager, Reserve Bank of India, Securities Section, Public Accounts Department (PAD), Mumbai Office by 4.30 P.M. ii) The NDS provides for submission of single or multiple applications by the member. However, as far as possible only one request should be submitted by an applicant. iii) The MSF will be conducted as "Hold-in-Custody" repo, similar to LAF - Repo. iv) On acceptance of MSF requests, the applicant’s RC SGL Account will be debited by the required quantum of securities and credited to Bank’s RC SGL Account. Accordingly, the applicant’s current account will be credited with the MSF application amount. The transactions will be reversed in the second leg. In case the second leg falls on a holiday, the reversal date will be the next working day. v) The MSF transactions between Reserve Bank and counter parties which would involve operation of the RC SGL Account would not require separate SGL forms. vi) Pricing of all securities including Treasury Bills will be at face value for MSF operations by Reserve Bank. Accrued interest as on the date of transaction will be ignored for the purpose of pricing of securities. 7. Minimum request size Requests will be received for a minimum amount of Rs. One crore and in multiples of Rs. One crore thereafter. 8. Eligible Securities MSF will be undertaken in all SLR-eligible transferable Government of India (GoI) dated Securities/TreasuryBills and State Development Loans (SDL). 9. Margin Requirement A margin of five per cent will be applied in respect of GoI dated securities and Treasury Bills. In respect of SDLs, a margin of 10 per cent will be applied. Thus, the amount of securities offered on acceptance of a request for Rs.100 will be Rs.105 (face value) of GoI dated securities and Treasury Bills or Rs.110 (face value) of SDLs. 10. Settlement of Transactions The settlement of all applications received under the MSF Scheme will take place on the same day after the closure of the window for acceptance of applications. IWhat is the difference between liquidity adjustment facility-repo rate and marginal standing facility rate of RBI? Under LAF - Repo rate, Banks can borrow from RBI at the Repo -rate  by pledging government securities over and above the statutory liquidity requirements.  However, in case of borrowing from the marginal standing facility, banks can borrow funds up to one percentage of their net demand and time liabilities, at 8.25%. and this can be within the statutory liquidity ratio of 24%.

What are the Economic functions of Banks?
The economic functions of banks include:
1. issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer’s order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par and effectively transferable by mere delivery in the case of banknotes, or by drawing a cheque, delivering it to the payee to bank or cash.
2. netting and settlement of payments — banks act both as collection agent and paying agents for customers, and participate in inter-bank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables payment flows between geographical areas to offset, reducing the cost of settling payments between geographical areas.
3. credit intermediation – banks borrow and lend back-to-back on their own account as middle men
4. credit quality improvement – banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank’s assets and the bank’s own capital which provides a buffer to absorb losses without defaulting on its own obligations. However, since banknotes and deposits are generally unsecured, if the bank gets into difficulty and pledges assets as security to try to get the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position.
5. maturity transformation — banks borrow more on demand debt and short term debt, but provide more long term loans. In other words; banks borrow short and lend long. Bank can do this because they can aggregate issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintain reserves of cash, invest in marketable securities that can be readily converted to cash if needed, and raise replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets) because they have a high and more well known credit quality than most other borrowers.

Notes-On-Regulation-Branchless-Banking

What is MFN?
MFN stands for Most Favoured Nation. The principle, fundamental to the GATT, of treating imports from a country on the same basis as that given to the most favored other nation. That is, and with some exceptions, every country gets the lowest tariff that any country gets, and reductions in tariffs to one country are provided also to others.

What is Gold Standard?

A monetary system in which both the value of a unit of the currency and the quantity of it in circulation are specified in terms of gold. If two currencies are both on the gold standard, then the exchange rate between them is approximately determined by their two prices in terms of gold.

1. What is Balance of Trade?
The value of a country’s exports minus the value of its imports. Unless specified as the balance of merchandise trade, it normally incorporates trade in services, including earnings (interest, dividends, etc.) on financial assets.

2. What is Balanced Trade?
When A balance of trade equal to zero. (exports-imports=0)
3. What is Balance of merchandise trade?
The value of a country’s merchandise exports minus the value of its merchandise imports.
4. What is a favorable balance of trade?
It is the difference between exports and imports. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.
5. What is Balance of Payments?
A list, or accounting, of all of a country’s international transactions for a given time period, usually one year. Payments into the country (receipts) are entered as positive numbers, called credits; payments out of the country (payments) are entered as negative numbers called debits. A single number summarizing all of a country’s international transactions: the balance of payments surplus.
6. What is Balance of payments adjustment mechanism?
Any process, especially any automatic one, by which a country with a payments imbalance moves toward balance of payments equilibrium

Probationary Officer

Probationary Officer is one of the post regularly advertised for bank recruitments, but many candidates do not know the work involved or the exact meaning of PO.One of our readers had asked a question regarding the role of probationary officer in banks.
Hence we felt it would be better to analyze the job profile in detail, enabling freshers to understand the position better before applying for upcoming bank exams.So, what are the functions of a Probationary Officer in bank ?
Probationary Officer is the first entry point for a job in bank, especially to fresh graduates & those without prior experience.The PO will report to their immediate senior officer,who will closely monitor & evaluate the performance of him/her for a certain period.
While on job, Probationary officers will have to take up assignments given by their managers.Along with training,they will also be deployed across various departments of the bank to gain exposure in operations & working of bank.So,in short,the PO must be willing to take up any work during the probation period in order to understand the process effectively & to scale greater heights and reach higher positions.
Probation period : Normally,the probation period for PO`s will be for 2 years.The probation period can also considered as the learning phase. Hence it is extremely important to be in good conduct,during probation.Banks have the right to terminate the employee during the probation,if he/she does not fit the position.