STANDING DEPOSIT FACILITY

PRELIMS BITS: 

Introduction

• Established on April 8, 2022, by the Reserve Bank of India (RBI) to manage banking system liquidity.

What Is the Standing Deposit Facility?

• Allows banks to deposit excess funds with the RBI without collateral.
• Serves as a floor for the Liquidity Adjustment Facility (LAF) corridor, replacing the reverse repo rate.

Concerns Over Banking Behaviour

• Banks parking funds in the SDF instead of lending in the uncollateralised call money market.

Impact on the Call Money Market

• Redirecting funds to the call money market would lower overnight interbank lending rates.

Operation of the SDF

• Operates 25 basis points below the policy repo rate for overnight deposits.

Future of Reverse Repo Rate

• Fixed Rate Reverse Repo (FRRR) remains as a tool in the RBI’s toolkit for specific liquidity management needs.