Source: ET
Why in News?
Banks have parked a record ₹4.52 lakh crore in the Standing Deposit Facility (SDF) window of the Reserve Bank of India (RBI), amid surplus liquidity in the banking system.
What is the Standing Deposit Facility (SDF)?
- The Standing Deposit Facility (SDF) is a liquidity absorption tool introduced by the Reserve Bank of India (RBI) in April 2022 to manage excess liquidity in the banking system.
- Allows banks to park excess funds with RBI without providing collateral.
- SDF rate currently stands at 5%, which is:
- 25 basis points below the policy repo rate (5.25%).
- It acts as the floor rate of the Liquidity Adjustment Facility (LAF) corridor.
Current LAF corridor structure:
- SDF (Floor): 5%
- Repo Rate (Policy Rate): 5.25%
- MSF (Ceiling): 5.50%
Why Was SDF Introduced?
- To absorb surplus liquidity efficiently.
- To reduce reliance on reverse repo (which requires collateral).
- To strengthen monetary policy transmission.
- To provide a stronger floor to short-term money market rates.
