Which of the following statements is are correct 1 Bank rate acts as the penal rate f...........

Economic Affairs Money Supply and Monetary Policy

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Which of the following statements is/are correct?

1. Bank rate acts as the penal rate for any shortfall by banks in keeping CRR and SLR.

2. RBI lends to banks under MSF (Marginal Standing Facility) against government securities.

3. Banks can take any amount of loan under MSF.

4. Loans under MSF are restricted to a certain percentage of Net Demand and Time liabilities of a bank.

Select the correct answer using the codes given below:

Only one statement is correct

Only two statements are correct

Only three statements are correct

All statements are correct

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Explanation:

Marginal Standing Facility is a new Liquidity Adjustment Facility (LAF) window created by Reserve Bank of India in its credit policy of May 2011. MSF is the rate at which the banks are able to borrow overnight funds from RBI against the approved government securities.
A bank rate is the interest rate at which a nation's central bank lends money to domestic banks, often in the form of very short-term loans. Managing the bank rate is method by which central banks affect economic activity. Lower bank rates can help to expand the economy by lowering the cost of funds for borrowers, and higher bank rates help to reign in the economy when inflation is higher than desired.