Previous Year Question
The terms ‘Marginal Standing Facility Rate’ and ‘Net Demand and Time Liabilities’, sometimes appearing in news, are used in relation to:
Banking operations
Communication networking
Military strategies
Supply and demand of agricultural products
Correct Answer: A
Detailed Solution
Marginal Standing Facility Rate and Net Demand and Time Liabilities are both associated with banking operations and RBI’s monetary and liquidity-management framework.
Marginal Standing Facility: MSF is a short-term borrowing facility provided by RBI to scheduled commercial banks. Under this facility, eligible banks can generally obtain overnight funds from RBI against permitted government securities.
It is primarily used when a bank faces an unexpected or temporary shortage of liquidity. The MSF Rate is generally kept above the Repo Rate; therefore, MSF functions mainly as an emergency liquidity window rather than a source of routine funding.
Net Demand and Time Liabilities: NDTL represents the net total of a bank’s demand and time liabilities.
Demand liabilities are payable on demand, such as current-account deposits and the demand component of savings deposits.
Time liabilities become payable after a specified period, such as fixed or term deposits.
Specified liabilities to and assets with other banks are adjusted while calculating NDTL.
Reserve requirements such as CRR and SLR are calculated as prescribed percentages of a bank’s NDTL. NDTL, therefore, forms the base for determining a bank’s statutory reserve obligations.