RBI allows RRBs to access LAF, MSF windows

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News: Reserve Bank of India(RBI) has allowed regional rural banks (RRBs) to access the liquidity adjustment facility(LAF), marginal standing facility(MSF) and call or notice money markets with the aim to facilitate better liquidity management for these lenders.

Facts:

  • Liquidity Adjustment Facility(LAF): It is a facility extended by the Reserve Bank of India to the banks to avail liquidity in case of requirement or park excess funds with the RBI in case of excess liquidity on an overnight basis against the collateral of Government securities including State Government securities.
  • Marginal standing facility(MSF): It is a window for banks to borrow from the Reserve Bank of India in an emergency situation when interbank liquidity dries up completely.MSF rate is generally higher than Repo rate.
  • Call or Notice Market: The call/notice money market forms an important segment of the Indian Money Market.Under call money market, funds are transacted on an overnight basis and under notice money market funds are transacted for a period between 2 days and 14 days.

Additional Facts:

  • Regional Rural Banks: These are financial institutions which ensure adequate credit for agriculture and other rural sectors.They were set up on the basis of the recommendations of the Narasimham Working Group (1975), and after the legislation of the Regional Rural Banks Act, 1976.
  • First RRB: The first Regional Rural Bank “Prathama Grameen Bank” was set up on 2nd October, 1975.
  • Stakeholders: The equity of a regional rural bank is held by the Central Government, concerned State Government and the Sponsor Bank in the proportion of 50:15:35.
  • PSL: The RRBs are required to provide 75% of their total credit as priority sector lending(PSL).
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