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The Marginal Standing Facility

In an attempt to unravel what’s happening with liquidity in India, let me explain a new concept called the Marginal Standing Facility (MSF).

When you deposit money in a bank, it has to keep 6% of that money as a reserve called Cash Reserve Ratio (CRR) against withdrawals by depositors as a whole. It also has to put 24% in Government of India bonds as a “Statutory Liquidity Ratio” (SLR) requirement. The rest it can lend out.

Usually banks . . .

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