UPSC Prelims 2014 Q31: Indian Economy – Monetary Policy & Money Supply
The terms ‘Marginal Standing Facility Rate’ and ‘Net Demand and Time Liabilities’,
sometimes appearing in news, are used in relation to
- (a) banking operations
- (b) communication networking
- (c) military strategies
- (d) supply and demand of agricultural products
Answer: (a) banking operations
Explanation
Marginal Standing Facility Rate and Net Demand and Time Liabilities
Both terms belong to banking operations.
| Term | Meaning |
|---|---|
| Marginal Standing Facility (MSF) | A window, opened in 2011, where banks borrow overnight from the RBI in an emergency, by pledging Government securities |
| MSF rate | Kept above the repo rate, so it is a costlier, last-resort source |
| Net Demand and Time Liabilities (NDTL) | A bank's total deposits (demand and time) owed to the public, net of inter-bank dues |
Why NDTL matters:
| Ratio | Calculated on |
|---|---|
| Cash Reserve Ratio (CRR) | A percentage of NDTL kept with the RBI |
| Statutory Liquidity Ratio (SLR) | A percentage of NDTL kept in Government securities, gold or cash |
The terms have nothing to do with communication networking, military strategies or agricultural products.
Answer: (a) banking operations.
Why each option is right or wrong
- (a) CORRECT. Both terms are used in relation to banking operations.
- (b) Incorrect. They are not terms of communication networking.
- (c) Incorrect. They have nothing to do with military strategies.
- (d) Incorrect. They do not relate to supply and demand of agricultural products.
Key point
MSF (2011): overnight emergency borrowing from the RBI at a rate above repo. NDTL: a bank's deposit liabilities, the base for CRR and SLR.
Remember
MSF and NDTL = banking terms.
Common mistakes
- Reading 'demand' in NDTL as market demand for goods.
- Confusing MSF with the repo window; MSF is costlier.
- Forgetting that CRR and SLR are percentages of NDTL.
Exam tip
Repo = normal borrowing. MSF = emergency borrowing, at a higher rate.
Sources
- Reserve Bank of India — Marginal Standing Facility Scheme (2011)
- Reserve Bank of India — Master Direction on Cash Reserve Ratio and Statutory Liquidity Ratio