The Reserve Bank of India proposes two essential key rates which help in controlling the money supply of the country’s economy. These are the repo rate and MSF rate. Often considered the same, these two key rates are not. Here is a comprehensive guide on what MSF is and how it affects home loans.
What is MSF?
MSF stands for Marginal Standing Facility, which is one of the provisions of the Reserve Bank of India made to manage the liquidity of scheduled commercial banks overnight. MSF rate is generally higher than the repo rate and is a facility to be accessed only at the time of emergencies.
Banks can only use those securities that come under the SLR or Statutory Liquidity Ratio as collateral to avail loans from the RBI under MSF. Therefore, MSF rates are higher than repo rates, it provides greater liquidity solutions and helps RBI influence the short-term interest rate structure of the economy.
What are the key features of MSF?
The MSF policy was launched by RBI, as a part of the monetary policies reformation in 2011-12. Its main objective is to control the financial instability or fluctuations in the banking system during emergencies only. However, it has several other key features, some of which are listed below:
- Interest rate
The MSF rate is usually set higher than the repo rate, although they function somewhat similarly. It implies that whenever MSF rate increases, interest rates of credit options such as home loans become high. On the contrary, the interest rates of home loans become lower when the MSF rate decreases.
- Liquidity provision
The MSF policy enables banks to manage their liquidity requirements within a short time. It allows such facilities for scheduled banks against eligible securities, including approved instruments and government securities. It has a one-day maturity policy and ensures the fulfilment of the monetary requirements of the scheduled commercial banks overnight.
- Overnight borrowing
The policy of the MSF is to provide monetary assistance to scheduled commercial banks on an overnight basis. It serves as an emergency funding line for central banks in a circumstance where they are unable to get financial help from any other sources. Hence, the banks need to repay the loan within the stipulated time of one working day. This repayment would be with the applicable interest.
- SLR marginal relief
Under the MSF rate, banks are required to pay a certain percentage as a deposit of their NDTL or Net Demand Time Liabilities. It allows the banks to keep securities as collateral in the form of cash etc. as per the prevailing SLR rate. Through the MSF, banks can borrow funds from their SLR investments, which provides them with additional flexibility.
Therefore, with a comprehensive knowledge of MSF, repo rate, and other essential details, borrowers can make an informed approach to their home loan application process, which is simple and hassle-free.
What are the steps to apply for a home loan?
The steps for the online home loan application are as follows:
Step 1: Application: Visit the home loan application portal of the financial institution. Fill in the necessary details such as name, mobile number, email ID, monthly income details, DOB etc. then submit it.
Step 2: Document collection: Upload the documents such as employee ID, salary slips of the last 2 months, and KYC documents like voter ID cards, Aadhaar cards etc. that the lender asks for.
Step 3: Home loan verification process: In this step, the lending institution will process the documents and check the authentication of the same. During that time, they will check the credit history of the borrower.
Step 4: Sanction letter: After the documents are verified, the borrower will receive a sanction letter which contains the details of the loan such as rate of interest, loan amount, repayment tenor, type of interest rate, and fixed or variable.
Step 5: Secure payment of fee: The lender may ask for a one-time secure fee after the sanctioning of the loan application.
Step 6: Legal and technical inspection: The lender may send their representative to the property site to further inspect before disbursing the borrower’s loan.
Step 7: Loan agreement and disbursal: After all the inspections are completed, the borrower will receive the final agreement of the loan and the lender will disburse the loan amount.
There are pre-approved offers on loans like home loans, loans against property etc. that certain lending institutions provide to their existing borrowers. Individuals who wish to apply for the same can check their pre-approved offers on their lender’s website by entering their name and other details.
Since a home loan is a long-term commitment, the borrowers should have knowledge of some essential factors. These include rate of interest, MSF rate, repo rate, eligibility criteria, credit repayment, along with other terms and conditions. It will further help assist them in their approach to their home loan applications.