The Liquidity Adjustment Facility (LAF) is the set of tools the RBI uses every day to add money to the banking system or take it out, so that the overnight call rate stays close to the repo rate. It has two kinds of tools. Standing facilities are open on demand at a fixed rate: banks park spare money in the SDF and borrow in an emergency through the Marginal Standing Facility (MSF). Market operations are auctions in which the RBI sets the amount and banks bid the rate. This part explains how the LAF grew from a 2000 experiment into today's framework, how the auctions and cut-off rates work, how the MSF lets a bank borrow against the securities it holds for its SLR, and what a bank's liquidity day looks like from the 9:30 am auction to the midnight close of the MSF window. As of 24 October 2026 the corridor is SDF 5.25%, repo 5.50%, MSF 5.75%.
Part 4, repo rate, reverse repo rate and the SDF, covers the rates themselves: what a repo is, the old reverse repo floor, the SDF and the width of the corridor. This part does not repeat that. It covers how the system runs. Reserve requirements are in CRR and SLR, outright bond purchases and sales in open market operations and liquidity, and how the call rate passes into loan rates in the monetary transmission mechanism.
In the news
- 23 October 2026: the RBI is adding money, not absorbing it. It ran a variable rate repo (VRR) auction on a fourth straight working day: a 3-day ₹50,000 crore VRR drew ₹1.07 lakh crore of bids and cleared at 5.58%. The call rate averaged 5.69% on 22 October, near the 5.75% MSF ceiling. Why it matters for the exam: when money is short, the call rate moves towards the MSF rate and the RBI injects through VRR.
- 20 October 2026: MSF borrowing hits ₹29,561 crore. On a market holiday, banks borrowed ₹29,561 crore under the MSF while others parked ₹1.47 lakh crore in the SDF. Why it matters for the exam: the MSF covers shortfalls the market cannot meet, and heavy use of both windows shows liquidity is unevenly spread.
- 19 October 2026: first VRR after the CRR change. A 7-day ₹1 lakh crore VRR drew ₹1.51 lakh crore of bids and cleared at 5.51% (weighted average 5.52%), with 56.04% allotment at the cut-off. Why it matters for the exam: cut-off rate, weighted average rate and partial allotment appear in every auction result.
- 16 October 2026: daily CRR minimum raised to 99%. A notification of 9 October raised the share of the CRR that banks must hold every day from 90% to 99%. Why it matters for the exam: banks can no longer run down reserves mid-fortnight, so more of them need the MSF or VRR.
- 7–8 October 2026: auctions after the hike. Hours after repo rose to 5.50%, the RBI absorbed ₹2.56 lakh crore in an overnight variable rate reverse repo (VRRR) at 5.49%. Why it matters for the exam: VRRR cut-offs sit just below repo and above the SDF rate.
- September 2026: absorption peaks. Average daily net LAF absorption reached ₹7.8 lakh crore, up from ₹1.2 lakh crore in July, and the RBI ran 55 VRRR auctions between the August and October policies. Why it matters for the exam: in a big surplus most money is absorbed through VRRR, not the SDF.
- 15 December 2025: a new reporting fortnight. Under the Banking Laws (Amendment) Act, 2025, the CRR and SLR fortnight runs from the 1st to the 15th and from the 16th to month-end. Why it matters for the exam: that is why the 99% rule starts on "16 October".
How the LAF grew
1998–2000: Narasimham II and the first LAF
The Committee on Banking Sector Reforms (Narasimham Committee II), which reported in April 1998, recommended a Liquidity Adjustment Facility through which the RBI would run auctions regularly. The RBI moved in stages:
- April 1999: Interim LAF (ILAF). Money was absorbed through a daily fixed rate reverse repo, and banks borrowed through refinance windows linked to the Bank Rate.
- 5 June 2000: full-fledged LAF. Variable rate auctions replaced the fixed rate reverse repo and some refinance windows, so both the amount and the rate moved every day.
- 2001 to March 2004: the Bank Rate refinance windows were phased out. From 29 March 2004 all liquidity support was given at the repo rate.
2004: the name swap and overnight fixed rates
On 29 October 2004 the RBI swapped the names "repo" and "reverse repo" to match international usage. From 1 November 2004 the LAF ran on overnight fixed rate repo and reverse repo. The two rates moved separately, and the corridor between them was asymmetric, varying from 100 bp to 300 bp. A Second LAF (SLAF), a later daily window, followed on 28 November 2005.
2011: one policy rate and the MSF
The Working Group on Operating Procedure of Monetary Policy under Deepak Mohanty (March 2011) found that the effective policy rate had swung between the repo and the reverse repo, depending on whether the system was in deficit or surplus. Following its advice, on 3 May 2011 the RBI made the repo rate the single policy rate, adopted the weighted average call rate (WACR) as the operating target and set up the MSF, 100 bp above repo. Part 4 has the details of the corridor.
The group had proposed an "Exceptional Standing Facility" of up to 1% of NDTL, carved out of the SLR portfolio. The RBI kept the carve-out at 1% of NDTL but named the window the MSF.
2014: term repos and the Urjit Patel report
The Urjit Patel Committee (report of 21 January 2014) is best known for inflation targeting, but it also argued that the RBI should supply liquidity mainly through term repos rather than overnight repos.
The RBI revamped the framework in 2014 and ended unlimited borrowing at the fixed repo rate. Banks were assured liquidity of about 1% of NDTL: up to 0.25% of NDTL through overnight fixed rate repo and the rest through four 14-day variable rate term repo auctions in each fortnight. Fine-tuning repo and reverse repo auctions of overnight to 28 days were added. In April 2016 the RBI decided to move system liquidity from deficit towards neutrality, and the daily CRR minimum was cut from 95% to 90%.
2019–2020: the first internal working group
An Internal Working Group (IWG) to Review the Liquidity Management Framework, announced in June 2019, reported on 26 September 2019. It kept the corridor system, recommended operationalising the SDF early and kept the 90% daily CRR minimum. The RBI's revised framework of 6 February 2020 then made a 14-day VRR/VRRR, timed to match the CRR fortnight, the main operation. It withdrew the daily fixed rate repo and the fortnightly term repos, leaving the MSF as the only fixed rate source of borrowing.
2022: the SDF becomes the floor
On 8 April 2022 the uncollateralised SDF replaced the fixed rate reverse repo as the floor (see Part 4). In December 2023 the RBI let SDF and MSF transactions reverse on weekends and holidays from 30 December 2023, instead of only on the next working day in Mumbai.
2025: the second internal working group
A second IWG, chaired by Deputy Governor Poonam Gupta, submitted its report on 30 July 2025. It was published on 6 August 2025 for comments. The RBI issued its revised Liquidity Management Framework on 30 September 2025, which is the framework in force today.
The framework today
The September 2025 framework
The main points of the RBI's press release of 30 September 2025:
- Operating target and corridor: the overnight WACR, inside a symmetric corridor of SDF (repo − 25 bp) and MSF (repo + 25 bp).
- Main operation: the 14-day VRR/VRRR was dropped. Short-term liquidity is managed mainly through 7-day VRR/VRRR, with other tenors from overnight to 14 days at the RBI's discretion.
- Notice: at least one day's advance notice of operations, though the RBI may announce and run an operation on the same day when needed.
- Fine-tuning: VRR/VRRR auctions and FX swaps, with amounts at the RBI's discretion.
- SDF and MSF: open 7:00 pm to 11:59 pm every day. The SDF has no limit; the MSF is limited to excess SLR plus 2% of NDTL.
- Durable liquidity: OMOs, longer VRR/VRRR (beyond 14 days) and FX swap auctions.
- Standalone primary dealers (SPDs): access to the SDF, overnight reverse repo and all repo operations regardless of tenor.
- CRR: the 90% daily minimum was kept then. It was raised to 99% from 16 October 2026.
Standing facilities and market operations
The toolkit splits along one line: who decides the amount.
| Standing facilities (SDF, MSF) | Market operations (VRR, VRRR) | |
|---|---|---|
| Who starts it | The bank, whenever it wants | The RBI, when it judges liquidity needs it |
| Amount | Whatever the bank needs (MSF up to its limit) | Notified by the RBI |
| Rate | Fixed: SDF repo − 25 bp, MSF repo + 25 bp | Set by bids in an auction |
| Timing | 7:00 pm to 11:59 pm, every day | Announced windows, usually 9:30–10:00 am |
| Purpose | Last resort at the end of the day; sets the corridor | Keep the call rate near repo |
Because the standing facilities are priced 25 bp worse than repo on each side, a bank uses them only when the market and the auctions have not met its needs. That is what makes them a floor and a ceiling.
Who can use what
- SDF: all LAF participants, including standalone PDs since 2025. SDF balances do not count towards the CRR, but they are an eligible SLR asset.
- MSF: scheduled banks, excluding regional rural banks. The facility began with scheduled commercial banks in 2011, and the RBI's MSF circulars were later extended to scheduled urban co-operative banks (2014) and scheduled state co-operative banks (2018).
- Standalone PDs and the MSF: SPDs are not eligible. The 2025 IWG noted that SPDs already have a Standing Liquidity Facility (SLF) at the repo rate, against government securities, repayable within 90 days. With the call market now open until 7 pm, it saw no need to give SPDs MSF access.
Fixed rate and variable rate operations
The two methods
In a fixed rate operation, the RBI announces the rate and gives every bank whatever it asks for ("full allotment"). The SDF and MSF work this way, as did the overnight fixed rate repo before 2020. The 2025 IWG noted the trade-off: full allotment gives each bank certainty, but unlimited money at a fixed rate creates moral hazard and weakens lending between banks.
In a variable rate operation, the RBI fixes the amount and banks bid the rate. The bids show how much banks really need, and the RBI can choose the cut-off. All VRR and VRRR auctions work this way. The IWG judged variable rate operations better suited to liquidity management.
How an auction clears
The RBI's operational guidelines (February 2020 for VRRR, January 2022 for VRR) set the rules:
- Bids go in on the RBI's e-Kuber platform, in multiples of ₹1 crore, as rates with up to two decimals. A bank can place several bids.
- VRR (injection): bids at or below the repo rate are rejected. Bids are ranked from the highest rate down, and the cut-off is the rate at which the notified amount is filled. Bids at or above the cut-off succeed.
- VRRR (absorption): bids at or above the repo rate are rejected. Bids are ranked from the lowest rate up, and bids at or below the cut-off succeed, so the RBI pays as little as it can.
- Successful bids are accepted at their own bid rates. It is a multiple-price auction, so the weighted average rate can differ from the cut-off.
- If the bids at the cut-off exceed what is left, they are filled pro rata.
- Reversal is at the start of the day on the reversal date. Collateral and haircuts are the same as in the LAF.
Example: the 7-day VRR of 19 October 2026
| Item | Value |
|---|---|
| Notified amount | ₹1,00,000 crore |
| Bids received | ₹1,50,735 crore |
| Amount allotted | ₹1,00,014 crore |
| Cut-off rate | 5.51% |
| Weighted average rate | 5.52% |
| Allotment at the cut-off | 56.04% of bids at 5.51% |
Reading it:
- Bids were 1.51 times the notified amount (₹1,50,735 ÷ ₹1,00,000).
- Every bid above 5.51% was filled in full, at the rate bid.
- Bids at exactly 5.51% got 56.04% of what they asked for. A bank that bid ₹1,000 crore at 5.51% would get about ₹560 crore.
- Bids below 5.51% got nothing.
- The weighted average (5.52%) is above the cut-off because some banks paid more than 5.51%.
The cut-off is the best single reading of how tight money is. On 7 October, when the system was flush, the overnight VRRR cleared at 5.49%, just 1 bp under repo. On 23 October, after the 99% CRR rule took effect, a 3-day VRR cleared at 5.58%, 8 bp above repo.
The Marginal Standing Facility in detail
What it is
The MSF is an overnight collateralised loan from the RBI, at repo + 25 bp (5.75% now), available every day, including weekends and holidays. A bank asks for it on e-Kuber. It can also be triggered automatically through the Automated Sweep-In and Sweep-Out (ASISO) facility, which moves a bank's end-of-day shortfall into the MSF or its surplus into the SDF. The MSF rate equals the Bank Rate.
The 2025 IWG described the purpose plainly: the MSF is there "to meet any unanticipated shortfall" in a bank's daily cash reserves. With RTGS and NEFT running 24 hours a day, 365 days a year, money can leave a bank long after the call market has closed.
The SLR dip: 2% of NDTL, not 2% of SLR
Under the MSF, a bank can borrow against:
- its excess SLR holdings, meaning government securities above the 18% it must hold; and
- additionally, up to 2% of its NDTL, by pledging securities that form part of its required SLR. NDTL is taken as it stood at the end of the second preceding fortnight.
Some guides say "2% of SLR". That is wrong. The RBI's circulars, the September 2025 framework and the 2025 IWG report all state the limit as 2% of NDTL. On a ₹1,00,000 crore NDTL the difference is large:
- 2% of NDTL = ₹2,000 crore.
- "2% of SLR" would be 2% of ₹18,000 crore = only ₹360 crore.
The dip does not put the bank in SLR default. The RBI's notification under Section 24(2A) of the Banking Regulation Act counts securities pledged for the MSF, up to the limit, as part of the SLR. That is why the facility is described as a carve-out from the SLR.
How the limit has changed
| From | Dip into required SLR | Why |
|---|---|---|
| May 2011 | 1% of NDTL | MSF introduced |
| 17 April 2012 | 2% of NDTL | Limit doubled |
| 17 July 2013 | 2.5% of NDTL | Extra 0.5% only for the Special Repo Window for mutual funds, in the taper tantrum |
| 27 March 2020 | 3% of NDTL | Pandemic relief, first to 30 June 2020, later extended to 31 December 2021 |
| 1 January 2022 | 2% of NDTL | "Return to the normal dispensation" |
The penal rate
The MSF rate is a penal rate: it costs more than any normal source of overnight money. The spread over repo was 100 bp in 2011, a punitive 300 bp during the July 2013 taper tantrum, and 25 bp since April 2017 (Part 4 has the steps).
When banks use it
Banks turn to the MSF after a large late payment, when they missed the auction cut-off, on holidays and weekends with no market, when the call rate is near 5.75% anyway, and when the reserve requirement bites (quarter-ends, tax dates, the end of a CRR fortnight). In 2025-26 MSF use averaged only about ₹0.02 lakh crore (₹2,000 crore) a day, against SDF balances of ₹1.84 lakh crore in H1 and ₹2.20 lakh crore in H2. It spikes when money is short, as on 20 October 2026 (₹29,561 crore).
How much the windows are used
The RBI Bulletin's monthly "State of the Economy" article reports average SDF balances and MSF borrowing. These are full-month figures, each taken from the following month's article:
| Month (2026) | Average SDF balance | Average MSF borrowing |
|---|---|---|
| March | ₹3.22 lakh crore | ₹0.02 lakh crore |
| April | ₹3.77 lakh crore | ₹0.01 lakh crore |
| May | ₹2.1 lakh crore | ₹0.02 lakh crore (to 21 May) |
| June | ₹1.68 lakh crore | ₹0.01 lakh crore |
| July | ₹1.60 lakh crore | ₹1,094 crore |
| August | ₹2.13 lakh crore | ₹1,298 crore |
| September (to 21st) | ₹2.17 lakh crore | ₹976 crore |
Three lessons:
- SDF use is well over 100 times MSF use. For most of 2025-26 and 2026-27 the system has been in surplus, and banks with spare money far outnumber those caught short at night.
- The SDF is not the whole surplus. In September average net LAF absorption was ₹7.8 lakh crore, but SDF balances were only about ₹2.2 lakh crore. The rest went into VRRR auctions, which pay more (5.24% against the SDF's 5.00% before the October hike).
- Both windows are used at once. On 6 October 2026, banks put ₹1,67,822 crore into the SDF while others borrowed ₹475 crore from the MSF. Liquidity is unevenly spread: some banks are flush while others are short, and the market does not always match them. The 2025 IWG treated this "skewness in liquidity distribution" as a separate problem.
Cash reserves and penalties
Why the CRR drives the LAF
The CRR is what creates the daily demand for reserves (see CRR and SLR). Each bank must keep 3% of NDTL with the RBI as the average over the fortnight and at least 99% of that requirement every day (from 16 October 2026). In practice:
- A bank's balance in its current account with the RBI counts towards the CRR. SDF balances do not. A bank cannot move its CRR money into the SDF to earn 5.25%.
- If a payment pushes the day's balance below the 99% floor, the bank must either borrow (market, auction or MSF) or pay penal interest.
- Under Section 42(3) of the RBI Act, the penalty is 3% above the Bank Rate (8.75% today) on the shortfall, rising to 5% above (10.75%) if the default continues.
Since the MSF costs 5.75% and the first-default penalty is 8.75%, a bank that is short should always prefer the MSF if it has the collateral.
Why 90% to 99% matters for the LAF
Under the old 90% floor, a bank with a ₹6,000 crore requirement could let its balance fall to ₹5,400 crore on a bad day and make it up later in the fortnight. Under 99%, the floor is ₹5,940 crore, so it can absorb only ₹60 crore of shocks before it must borrow. The October 2026 data show the effect: from 16 October the RBI switched from absorbing money (VRRR) to injecting it (VRR), MSF borrowing rose and the call rate moved from below repo to near the MSF rate.
The SLR is linked too. Because the MSF dip is counted as SLR, a bank can borrow against required SLR securities for one night without breaching Section 24 of the Banking Regulation Act. The SLR penalty is the same as for the CRR: 3% above the Bank Rate, then 5% above.
Window timings
| Window | Hours | Since |
|---|---|---|
| Market repo and TREPS | 9:00 am to 4:00 pm | 1 August 2025 |
| Call money | 9:00 am to 7:00 pm | 1 July 2025 |
| Pre-announced VRR/VRRR | Usually 9:30 to 10:00 am | 2025 timings review |
| Same-day VRR/VRRR | As announced (12:00 to 12:30 pm on 7 October 2026) | — |
| OMO auctions | As announced (9:30 to 10:30 am on 13 October 2026) | — |
| SDF and MSF | 7:00 pm to 11:59 pm, all days | 1 July 2025 |
How the standing windows have moved:
- 30 November 2015: fixed rate reverse repo and MSF windows extended to 5:30–7:30 pm, with LAF repo at 9:00 am–3:00 pm.
- Later the SDF and MSF were open 5:30 pm to 11:59 pm on all days.
- 1 July 2025: opening moved to 7:00 pm, so that the windows open just as the call market (extended to 7:00 pm) closes. The 2025 IWG noted that the later call market close would reduce banks' precautionary demand for reserves.
The design is deliberate. During market hours, a bank should borrow or lend in the market. The RBI's windows open only after the market closes, so the standing facilities catch only true end-of-day surpluses and shortfalls.
Worked example: a bank's liquidity day
Bank A is a scheduled commercial bank. All numbers are illustrative, but the rates and auction results are the real ones from October 2026.
Its position
- NDTL (end of the second preceding fortnight): ₹2,00,000 crore.
- CRR at 3%: average of ₹6,000 crore over the fortnight; daily minimum 99% = ₹5,940 crore.
- SLR at 18%: ₹36,000 crore required. Bank A holds ₹37,000 crore, so it has ₹1,000 crore excess.
- MSF capacity: ₹1,000 crore (excess SLR) + 2% × ₹2,00,000 crore (₹4,000 crore) = ₹5,000 crore, before haircuts.
9:30–10:00 am: the 7-day VRR. Bank A expects outflows this week and bids in the RBI's 7-day VRR of 19 October: ₹2,000 crore at 5.53% and ₹1,000 crore at 5.51%. The cut-off is 5.51% with 56.04% allotment at the cut-off.
- The 5.53% bid is above the cut-off, so it is filled in full at 5.53%.
- The 5.51% bid gets 56.04%, about ₹560 crore at 5.51%.
- Interest on the first leg: ₹2,000 crore × 5.53% × 7 ÷ 365 = ₹110.6 crore × 7 ÷ 365 = ₹2.12 crore for the week.
- The same ₹2,000 crore from the MSF for seven nights would cost ₹2,000 crore × 5.75% × 7 ÷ 365 = ₹2.21 crore. The auction saves about ₹8.4 lakh.
9:00 am–7:00 pm: the market. Bank A settles its customers' payments and squares off in the call and TREPS markets. By 7:00 pm its current account with the RBI holds ₹6,100 crore, comfortably above the ₹5,940 crore floor.
7:45 pm: a late outflow. A corporate customer sends ₹1,500 crore by RTGS. Bank A's balance falls to ₹4,600 crore, which is ₹1,340 crore below the daily minimum. The call market has closed.
Option 1: do nothing and pay the penalty (3% above the Bank Rate = 8.75%):
- ₹1,340 crore × 8.75% ÷ 365 = ₹117.25 crore ÷ 365 = ₹0.3212 crore, about ₹32.12 lakh.
- The low balance also drags down the fortnight's average, which must be made up later.
Option 2: borrow ₹1,340 crore overnight under the MSF at 5.75%:
- ₹1,340 crore × 5.75% ÷ 365 = ₹77.05 crore ÷ 365 = ₹0.2111 crore, about ₹21.11 lakh.
- The first ₹1,000 crore uses excess SLR securities. The other ₹340 crore dips into required SLR (0.17% of NDTL, well inside 2%). That ₹340 crore still counts as SLR, so there is no SLR default.
Bank A takes the MSF before 11:59 pm and saves about ₹11 lakh compared with the penalty. The loan reverses the next day, when Bank A repays ₹1,340 crore plus ₹21.11 lakh.
The other side: Bank B with ₹500 crore spare at 9:00 pm. It has already met its own 99% floor. It places ₹500 crore in the SDF at 5.25%:
- ₹500 crore × 5.25% ÷ 365 = ₹26.25 crore ÷ 365 = ₹0.0719 crore, about ₹7.19 lakh.
- Lent in the call market before 7:00 pm at 5.66% (the 19 October average), it would have earned ₹500 × 5.66% ÷ 365 = ₹7.75 lakh. The gap of about ₹56,000 is the price of finding the surplus only after the market closed.
On the same night, the RBI lends to Bank A at 5.75% and borrows from Bank B at 5.25%. Neither bank found the other in the market. That is the skewness that the IWG worried about, and it is why both windows can be busy on the same night.
Common exam traps
"2% of SLR" vs "2% of NDTL". The MSF dip is up to 2% of NDTL, on top of excess SLR. Not 2% of the SLR requirement.
Standalone PDs and the MSF. Since 2025, SPDs can use the SDF, overnight reverse repo and all repo operations. They still cannot use the MSF; they have the SLF instead.
SDF and CRR. SDF balances count for SLR, not CRR. Money in the SDF is not reserves.
Fixed vs variable. The SDF and MSF are fixed rate, on demand. VRR and VRRR are variable rate, with an amount set by the RBI and multiple-price allotment.
Main operation tenor. 14-day from February 2020 to September 2025; 7-day since the framework of 30 September 2025.
Window timings. SDF and MSF are open 7:00 pm to 11:59 pm (since 1 July 2025), not 5:30 pm. Call money closes at 7:00 pm.
1999 vs 2000. The Interim LAF came in April 1999. The full LAF came in June 2000. Narasimham II recommended it in 1998.
Key facts at a glance
| LAF recommended by | Narasimham Committee II (Committee on Banking Sector Reforms), April 1998 |
| Interim LAF | April 1999 |
| Full-fledged LAF | From 5 June 2000 |
| Repo/reverse repo names swapped | 29 October 2004 |
| Single policy rate and MSF | 3 May 2011 (Deepak Mohanty Working Group, March 2011) |
| Term repos and end of unlimited fixed-rate repo | 2014 (Urjit Patel Committee, January 2014) |
| 14-day main operation | Revised framework of 6 February 2020 (IWG, September 2019) |
| 7-day main operation | Revised framework of 30 September 2025 (IWG chaired by Poonam Gupta) |
| Operating target | Weighted average call rate (WACR) |
| Corridor (24 October 2026) | SDF 5.25% · repo 5.50% · MSF 5.75% |
| MSF limit | Excess SLR + up to 2% of NDTL (second preceding fortnight) |
| MSF eligibility | Scheduled banks except RRBs; not standalone PDs |
| SDF and MSF window | 7:00 pm to 11:59 pm, all days (since 1 July 2025) |
| Standard auction window | 9:30 am to 10:00 am |
| Daily CRR minimum | 99% from 16 October 2026 (was 90%) |
| CRR penalty | 3% above Bank Rate, then 5% above (Section 42(3)) |
Exam corner: what to remember
- The LAF has two kinds of tools: standing facilities (SDF and MSF, fixed rate, on demand) and market operations (VRR and VRRR, variable rate, RBI sets the amount).
- History: Narasimham II (1998) → ILAF (April 1999) → LAF (June 2000) → name swap (October 2004) → single policy rate and MSF (May 2011, Mohanty) → term repos (2014, Urjit Patel) → 14-day main operation (2020) → SDF floor (April 2022) → 7-day main operation (September 2025).
- MSF = repo + 25 bp = Bank Rate = 5.75% today. It is overnight, against excess SLR plus up to 2% of NDTL, dipping into required SLR without an SLR default.
- MSF dip history: 1% (2011) → 2% (2012) → 2.5% for the Special Repo Window (2013) → 3% (March 2020 to December 2021) → 2% (January 2022).
- SPDs can use the SDF and all repos, but not the MSF.
- Auctions are multiple-price. VRR bids must be above repo and VRRR bids below repo. Bids at the cut-off are filled pro rata.
- Windows: SDF and MSF 7:00 pm–11:59 pm; call money 9:00 am–7:00 pm; repo and TREPS 9:00 am–4:00 pm; pre-announced auctions 9:30–10:00 am.
- In 2026, SDF balances (₹1.6–3.8 lakh crore) ran far ahead of MSF borrowing (about ₹1,000–2,000 crore a day). That changed in late October, when MSF use rose to ₹29,561 crore on 20 October.
- The 99% daily CRR rule from 16 October 2026 turned the RBI from absorbing money to injecting it within days.
For exam-specific syllabus and pattern details, see our pages for RBI Grade B, SBI PO and IBPS PO.
Test yourself
The full-fledged Liquidity Adjustment Facility, recommended by the Narasimham Committee II, was introduced in:
Show answer
Answer: (b) The Interim LAF came in April 1999, and the transition to a full-fledged LAF began on 5 June 2000.
Under the MSF, a bank can borrow against its excess SLR holdings and, in addition, by dipping into its required SLR up to:
Show answer
Answer: (d) The limit is 2% of NDTL as at the end of the second preceding fortnight; it was 3% only from March 2020 to December 2021.
Which of these is not eligible for the Marginal Standing Facility?
Show answer
Answer: (a) Standalone PDs can use the SDF and repo operations but not the MSF; they have the Standing Liquidity Facility instead.
Since 1 July 2025, the SDF and MSF windows are open:
Show answer
Answer: (c) The opening was moved from 5:30 pm to 7:00 pm to match the extension of call money trading to 7:00 pm.
A bank borrows ₹730 crore overnight under the MSF at 5.75%. Assuming a 365-day year, the interest is:
Show answer
Answer: (b) ₹730 crore × 5.75% ÷ 365 = ₹0.115 crore = ₹11.50 lakh; (a) is the cost at the 5.50% repo rate.
A bank has NDTL of ₹50,000 crore, an SLR of 18% and SLR securities of ₹9,500 crore. Ignoring haircuts, the most it can borrow under the MSF is:
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Answer: (d) Excess SLR is ₹9,500 − ₹9,000 = ₹500 crore, plus 2% of ₹50,000 = ₹1,000 crore, for ₹1,500 crore; (c) wrongly uses 2% of the SLR requirement.
From the fortnight beginning 16 October 2026, scheduled banks must keep, on every day of the fortnight, at least what share of their required CRR?
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Answer: (a) The RBI raised the daily minimum from 90% to 99% by a notification of 9 October 2026; the CRR itself stayed at 3%.
A variable rate repo auction has a cut-off rate of 5.51% and a weighted average rate of 5.52%. Which statement is correct?
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Answer: (c) RBI auctions are multiple-price: in a VRR, bids at or above the cut-off succeed at their own rates, and bids at or below repo are rejected.
In the RBI's 7-day VRR auction of 19 October 2026, the cut-off rate was:
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Answer: (d) The auction allotted ₹1,00,014 crore at a 5.51% cut-off against bids of ₹1.51 lakh crore, as liquidity tightened after the 99% CRR rule.
Which committee recommended moving away from overnight repos towards term repos, leading to the end of unlimited fixed rate repo borrowing in 2014?
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Answer: (b) The Expert Committee to Revise and Strengthen the Monetary Policy Framework (January 2014) recommended de-emphasising overnight repos in favour of term repos.
Further reading
- Report of the Internal Working Group to Review the Liquidity Management Framework (RBI, 2025): the basis for today's framework. It covers fixed vs variable rate operations, SPDs and the MSF, skewed liquidity and the daily CRR minimum.
- RBI press release, Revised Liquidity Management Framework, 30 September 2025: the current rules on one page, including the 7-day main operation, the SDF and MSF and SPD access.
- Report of the Working Group on Operating Procedure of Monetary Policy (Deepak Mohanty, 2011): its appendix has a dated chronology of the LAF from 1998 to 2005 and the corridor's width since 2001.
- Report of the Internal Working Group to Review the Liquidity Management Framework (RBI, 2019): a clear history of the 2004, 2011 and 2014 frameworks and the case for the 2020 changes.
- Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework (Urjit Patel, 2014): the chapter on the operating framework explains the move to term repos.
- RBI Bulletin, State of the Economy, September 2026: read the liquidity paragraphs each month for the latest SDF, MSF and VRRR numbers.
- RBI Money Market Operations, as on 22 October 2026: the daily release that reports every LAF, SDF and MSF transaction. Learning to read one table is the best way to understand the LAF.
Sources
- RBI press release, Revised Liquidity Management Framework, 30 September 2025: WACR target, symmetric corridor, 7-day main operation, one day's notice, fine-tuning, SDF and MSF 7:00–11:59 pm, MSF limit of excess SLR plus 2% of NDTL, SPD access, 90% daily CRR continued (accessed 24 October 2026)
- RBI, Report of the IWG to Review the Liquidity Management Framework, 2025: Poonam Gupta as chair, transmittal of 30 July 2025, June 2000 full LAF, 2014 revamp (0.25% overnight plus four 14-day term repos, 1% of NDTL), daily CRR minimum cut from 95% to 90% from 16 April 2016, February 2020 framework, SPDs not given MSF access, SLF for SPDs, SPDs in all repos from 26 March 2025, MSF purpose, standard 9:30–10:00 am window, fixed vs variable rate operations (accessed 24 October 2026)
- RBI, Report of the IWG to Review the Liquidity Management Framework, 2019: ILAF April 1999, full LAF June 2000, overnight fixed rate LAF from October 2004 with a 100–300 bp asymmetric corridor, MSS April 2004, Mohanty and Urjit Patel changes, report of 26 September 2019 (accessed 24 October 2026)
- RBI, Report of the Working Group on Operating Procedure of Monetary Policy, 2011: Narasimham Committee II recommendation of April 1998, LAF chronology (5 June 2000, May 2001, October 2002, 29 March 2004, 29 October 2004 name swap, 1 November 2004, Second LAF 28 November 2005), Exceptional Standing Facility proposal of 1% of NDTL (accessed 24 October 2026)
- RBI, Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework, 21 January 2014: report date and title (accessed 24 October 2026)
- RBI circular on MSF, 17 July 2013: 2% of NDTL limit from April 2012, raised to 2.5% for the Special Repo Window, notification under Section 24(2A) counting MSF collateral as SLR (accessed 24 October 2026)
- RBI circular on MSF, 27 March 2020: limit raised from 2% to 3% of NDTL for scheduled banks excluding RRBs; references to MSF circulars for scheduled UCBs (2014) and StCBs (2018) (accessed 24 October 2026)
- RBI circular on MSF, 26 June 2020: 3% limit extended to 30 September 2020 (accessed 24 October 2026)
- RBI circular on MSF, 10 December 2021: 3% limit extended to 31 December 2021; return to 2% of NDTL from 1 January 2022 (accessed 24 October 2026)
- RBI press release, extension of LAF and MSF window timings, 24 November 2015: MSF and reverse repo 5:30–7:30 pm and repo 9:00 am–3:00 pm from 30 November 2015 (accessed 24 October 2026)
- RBI press release, SDF and MSF change in timings, June 2025: windows moved from 5:30–11:59 pm to 7:00–11:59 pm from 1 July 2025 (accessed 24 October 2026)
- The Week (PTI), 25 June 2025: call money 9:00 am–7:00 pm from 1 July 2025; market repo and TREPS 9:00 am–4:00 pm from 1 August 2025 (accessed 24 October 2026)
- RBI press release, reversal of SDF and MSF on weekends and holidays, 27 December 2023: reversal on weekends and holidays from 30 December 2023; ASISO facility; access on all days (accessed 24 October 2026)
- RBI press release, 14-day VRRR auction with operational guidelines, 13 February 2020: VRRR auction rules: e-Kuber, ₹1 crore multiples, bids at own rates, bids at or above repo rejected, ascending ranking, pro-rata at cut-off (accessed 24 October 2026)
- RBI press release, overnight VRR auction with operational guidelines, 20 January 2022: VRR auction rules: bids at or below repo rejected, descending ranking, bids at or above cut-off accepted at own rates (accessed 24 October 2026)
- RBI notification, change in daily minimum CRR maintenance, 9 October 2026: daily minimum raised from 90% to 99% from the fortnight beginning 16 October 2026 (accessed 24 October 2026)
- RBI, Governor's Statement, 7 October 2026: corridor after the hike; average daily net LAF absorption of ₹1.2 lakh crore in July and ₹7.8 lakh crore in September; 55 VRRR auctions; WACR 14 bp below repo since August (accessed 24 October 2026)
- RBI press releases on VRRR auctions, 6–8 October 2026: overnight VRRR of 7 October (₹3 lakh crore notified, 12:00–12:30 pm window, ₹2,55,827 crore accepted at 5.49%) and the 29-day VRRR of 8 October (₹79,655 crore at 5.49%, result) (accessed 24 October 2026)
- RBI, result of 7-day VRR auction, 19 October 2026: ₹1,00,000 crore notified, bids ₹1,50,735 crore, ₹1,00,014 crore allotted at 5.51% cut-off, weighted average 5.52%, 56.04% partial allotment; announcement with 9:30–10:00 am window (accessed 24 October 2026)
- RBI, result of 3-day VRR auction, 23 October 2026: ₹50,000 crore notified, bids ₹1,06,949 crore, cut-off 5.58%; 4-day VRR of ₹1.5 lakh crore announced for 26 October (accessed 24 October 2026)
- RBI, Money Market Operations as on 6 October 2026: SDF ₹1,67,822 crore at 5.00%, MSF ₹475 crore at 5.50%, overnight VRRR ₹1,92,357 crore at 5.24% (accessed 24 October 2026)
- RBI, Money Market Operations as on 20 October 2026: no call money trading; MSF ₹29,561 crore and SDF ₹1,46,888 crore (accessed 24 October 2026)
- RBI, Money Market Operations as on 22 October 2026: call money weighted average rate 5.69%; MSF ₹3,746 crore; SDF ₹1,61,742 crore (accessed 24 October 2026)
- RBI Bulletin, State of the Economy, 25 September 2026: August SDF average ₹2.13 lakh crore and MSF ₹1,298 crore; September (to 21st) SDF ₹2.17 lakh crore and MSF ₹976 crore; WACR 5.03% in September (to 21st) (accessed 24 October 2026)
- RBI Bulletin, State of the Economy, 25 August 2026: July SDF average ₹1.60 lakh crore and MSF ₹1,094 crore; 16 VRRR auctions in August (accessed 24 October 2026)
- RBI Bulletin, State of the Economy, 22 July 2026: June SDF average ₹1.68 lakh crore and MSF ₹0.01 lakh crore (accessed 24 October 2026)
- RBI Bulletin, State of the Economy, 22 June 2026: May SDF average ₹2.1 lakh crore (accessed 24 October 2026)
- RBI Bulletin, State of the Economy, 22 May 2026: April SDF average ₹3.77 lakh crore and MSF ₹0.01 lakh crore; May (to 21st) MSF ₹0.02 lakh crore (accessed 24 October 2026)
- RBI Bulletin, State of the Economy, 23 April 2026: March SDF average ₹3.22 lakh crore and MSF ₹0.02 lakh crore (accessed 24 October 2026)
- RBI Bulletin, Monetary Policy Report, April 2026: SDF averages of ₹1.84 lakh crore (H1 2025-26) and ₹2.20 lakh crore (H2); MSF ₹0.02 lakh crore in both halves; change in the reporting cycle from 15 December 2025 (accessed 24 October 2026)
- Reserve Bank of India Act, 1934 (RBI publication): Section 42(3) penal interest on CRR shortfalls (accessed 24 October 2026)