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.