Difference Between Bank Rate and MSF Rate

The rate at which banks borrow money from the RBI without any sale of securities is called the Bank rate. Unlike Repo Rate, there is no sale of security in Bank Rate. Such money is borrowed by banks comparatively for a longer period of time.

Marginal Standing Facility (MSF) is a very short term borrowing facility available to the scheduled commercial banks. MSF rate is the rate at which the these banks can borrow funds overnight from RBI against government securities. Banks can use this facility only in case of severe cash shortage or acute shortage of liquidity. An increase in the MSF rate results into higher borrowing cost for the banks and hence, reduces money supply in the economy.

There are many differences between Bank Rate and MSF Rate which are listed in the following table:

Difference between Bank Rate and MSF Rate

Basis of DifferenceBank Rate MSF Rate
DefinitionBank Rate is the rate at which banks borrow money from the RBI without any sale of securities
Vs
MSF rate is the rate at which the these banks can borrow funds overnight from RBI against government securities
PurposeBased on the demand and supply of money in the economy
Vs
Banks can use this facility only in case of severe cash shortage or acute shortage of liquidity
Controlled byReserve Bank of India
Vs
Reserve Bank of India
Impact on CostHigher the bank rate, higher will be the long-term interest rates
Vs
Higher the MSF rate means higher the overnight borrowing cost of funds for the banks
ControlDemand and supply of money in the economy
Vs
Controls the mismatch in short-term asset liability more effectively
Higher Rate results intoIf the bank rate goes up, long-term interest rates also tend to move up
Vs
Higher borrowing cost for the banks and hence, reduces money supply in the economy
CollateralNot involved
Vs
Provide government securities as collateral to the RBI
DurationLong term
Vs
For overnight