UPSC Prelims 2014 Question:

The terms 'Marginal Standing Facility Rate' and 'Net Demand and Time Liabilities', sometimes appearing in news, are used in relation to

Explanation:

• Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when interbank liquidity dries up completely.  Banks borrow from the central bank by pledging Government securities at a rate higher than the repo rate under a liquidity adjustment facility or LAF.  The MSF rate is pegged 100 basis points or a percentage point above the repo rate.
  
  
• Under MSF, banks can borrow funds up to one percent of their net demand and time liabilities (NDTL).  NDTL refers to the total demand and time liabilities (deposits) of the public that are held by the banks with other banks.
  
  
• Demand deposits consist of all liabilities, which the bank needs to pay on demand. They include current deposits, demand drafts, balances in overdue fixed deposits, and demand liabilities portion of savings bank deposits.  Time deposits consist of deposits that will be repaid on maturity, where the depositor will not be able to withdraw his/her deposits immediately.  Instead, he/she will have to wait until the lock-in tenure is over to access the funds.
  
  

Therefore, option (1) is the correct answer.

Subject: Economics | Money and Banking