Definition
Standing Deposit Facility (SDF)
The Standing Deposit Facility is the RBI tool that lets banks park surplus funds with it overnight without collateral, at a rate below the repo rate.
Introduced in 2022, the SDF replaced the fixed reverse repo as the floor of the RBI's interest-rate corridor. Banks deposit excess liquidity at the SDF rate, which sits below the repo, and the RBI absorbs the funds without giving government securities as collateral.
The SDF gives the RBI a collateral-free way to soak up surplus liquidity, useful when its holdings of securities for reverse repos are limited. Together with the repo and the MSF, it defines the corridor within which overnight money-market rates move.
Related terms
- Reverse Repo RateThe reverse repo rate is the interest the RBI pays banks for parking surplus funds with it — the mirror image of the repo rate, now largely replaced by the SDF as the operative floor.
- Liquidity Adjustment Facility (LAF)The LAF is the RBI's framework for managing day-to-day banking-system liquidity through tools such as the repo, the Standing Deposit Facility and the Marginal Standing Facility.
- Marginal Standing Facility (MSF)The Marginal Standing Facility is the RBI window where banks can borrow overnight funds against government securities at a rate above the repo rate.
- Repo RateThe repo rate is the interest rate at which the RBI lends short-term money to commercial banks, and it is the central bank's main tool to balance inflation and growth.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.