Standing Deposit Facility (SDF)
Context:
The Standing Deposit Facility (SDF), introduced by the Reserve Bank of India in April 2022, completes three years as a key tool in India’s liquidity management framework.
Relevance:
GS-03 (Economy)
What is SDF?
-
It is a monetary policy instrument used by the RBI to absorb surplus liquidity from the banking system without providing collateral.
-
Replaced the Fixed Rate Reverse Repo as the floor of the Liquidity Adjustment Facility (LAF) corridor.
-
Functions as an overnight liquidity absorption tool but with flexibility to extend the tenure.
-
Open to all LAF-eligible entities and operates 365 days a year, including holidays.
Prelims Question:
Q. With reference to the Standing Deposit Facility (SDF), consider the following statements:
-
It absorbs liquidity from banks without providing collateral.
-
It has replaced the Marginal Standing Facility as the upper limit of the LAF corridor.
-
It is available only on working days.
Which of the above statements is/are correct?
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3
Answer: (a) 1 only
