Skip to main content

What is Standing Deposit Facility (SDF)?

Reserve Bank of India (RBI) has added another tool to its monetary policy kit with the introduction of Standing Deposit Facility (SDF).

What is Standing Deposit Facility (SDF)?

Standing Deposit Facility (SDF) is an arrangement wherein banks can park their surplus liquidity with Reserve Bank of India (RBI), without the need for any collateral in exchange.

SDF rate is the interest rate offered by RBI on the funds parked by banks under SDF.

What is the basis of introduction of SDF?

In 2014, Expert Committee set up by RBI to revise and strengthen monetary policy framework (Chairman: Dr. Urjit Patel) had recommended the introduction of SDF. 

To empower RBI to introduce SDF, Section 17(1A) was added to Reserve Bank of India Act, 1934 in 2018, which reads as – “Accept deposit, repayable with interest, from banks or any other person under the Standing Deposit Facility Scheme, as approved by the Central Board, for the purposes of liquidity management”.

From when is SDF operational?

SDF is operational with effect from April 08, 2022.

How is SDF different from Reverse repo?

  • Under Reserve repo, banks can park their surplus liquidity with RBI against a collateral of approved government securities. On the other hand, SDF is an uncollateralised facility.
  • Access to SDF and Marginal Standing Facility (MSF) is at the discretion of banks, unlike repo / reverse repo are available at the discretion of RBI. 

What is the impact of SDF on monetary policy framework?

  • SDF has replaced the Fixed Rate Reverse Repo (FRRR) as the floor of the Liquidity Adjustment Facility (LAF) corridor (also known as policy corridor or interest rate corridor).
  • The introduction of SDF provides symmetry to the operating framework of monetary policy. At both ends of the LAF corridor, there are standing facilities – one to absorb (SDF) and the other to inject liquidity (MSF). 
  • By removing the binding collateral constraint on the central bank, the SDF strengthens the operating framework of monetary policy.
  • SDF is also a financial stability tool in addition to its role in liquidity management.

What is Liquidity Adjustment Facility (LAF) corridor?

LAF corridor is a range of interest rates consisting of MSF rate as the ceiling rate, Repo rate at the center and SDF rate as the floor rate of the corridor. Presently, LAF corridor is of 50 basis points (i.e. 0.50%), with repo rate being 25 basis points below MSF rate and 25 basis points above SDF rate. At current rates, the interest rate corridor appears as below –

MSF rate (6.15%) ---------------------------------------------------------

Repo rate (5.90%) --------------------------------------------------------

SDF rate (5.65%) ---------------------------------------------------------

How are SDF deposits treated for CRR, SLR and LCR requirements?

  • Deposits under SDF are not reckoned as balances eligible for maintenance of Cash Reserve Ratio (CRR) under Section 42 of Reserve Bank of India Act, 1934.
  • But SDF deposits are an eligible asset for maintenance of Statutory Liquidity Ratio (SLR) under Section 24 of Banking Regulation Act, 1949.
  • The overnight balances held by banks with RBI under SDF are eligible as ‘Level 1 High Quality Liquid Assets (HQLA)’ for computation of Liquidity Coverage Ratio (LCR).

How are SDF transactions processed?

  • The overnight SDF would be operated under Straight Through Processing (STP) mode. Under STP mode, the bids would be settled automatically and immediately on receipt by e-Kuber system with concurrent debit of funds to ensure efficient and faster processing. 
  • Participants have the option to use SDF-ASISO (Automated Sweep-In and Sweep-Out facility) wherein depending upon a pre-set limit, the SDF bids are triggered automatically without any manual intervention at the end of the day. 
  • The minimum bid size under SDF is Rs.1 crore and in multiples thereof. There is no ceiling on the bid amount.


References

Reserve Bank of India. (2014, January 10). 'Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework'. Retrieved from https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/ECOMRF210114_F.pdf

Reserve Bank of India. (2022, April 08). 'Governor’s Statement: April 8, 2022'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=53535

Reserve Bank of India. (2022, April 08). 'RBI to operationalise Standing Deposit facility (SDF)'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=53539

Reserve Bank of India. (2022, August 29). 'The Reserve Bank of India Act, 1934'. Retrieved from https://rbi.org.in/Scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Act

Reserve Bank of India. (2022, November 23). 'Basel III Framework on Liquidity Standards – Standing Deposit Facility'. Retrieved from https://m.rbi.org.in/Scripts/NotificationUser.aspx?Id=12413&Mode=0


Follow at - Telegram   Instagram   LinkedIn   Twitter

Labels:

Comments

Post a Comment

Popular Posts

Credit Facilities – Lending against Gold and Silver Collateral

Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable to lending against gold and silver collateral. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) Central Co-operative Banks (CCBs) Non-Banking Financial Companies (NBFCs) for all layers – Deposit taking NBFC (NBFC-D) NBFC-Investment and Credit Companies (NBFC-ICC) NBFC-Factor  NBFC-Micro Finance Institutions (NBFC-MFI)  NBFC-Infrastructure Finance Company (NBFC-IFC)  Infrastructure Debt Fund-NBFC (IDF-NBFC)  Housing Finance Company (HFC)  To whom are the directions partially applicable? The prudential regulations are not applicable to ‘NBFCs-B...
Post a Comment
Read more

Highlights of RBI Annual Report 2025-26 – Chapter 1 to 3

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the first article in the series.  Legal framework for publication of Annual Report by the RBI Report of the Central Board of Directors on the working of RBI for the year is submitted to the Central Government in terms of Section 53(2) of the RBI Act, 1934. The letter of transmittal is signed by the RBI Governor and addressed to the Finance Secretary, Ministry of Finance, Government of India. Documents submitted by the RBI to the Central Government In pursuance of Section 53(2) of the RBI Act, 1934, the following documents have been submitted to the Central Government – A copy of the Annual Accounts for the year ended March 31, 2026 certified by the RBI’s Auditors and signed by Chief General Manager-in-charge, all the Deputy Governors and Governor. 2 copies of the Annual Report of the Central Board on the workin...
Post a Comment
Read more

Credit Facilities – Digital Lending Guidelines

Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable to digital lending. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) Central Co-operative Banks (CCBs) All India Financial Institutions (AIFIs) regulated by RBI – Export Import Bank of India (EXIM Bank) National Bank for Agriculture and Rural Development (NABARD) National Housing Bank (NHB) Small Industries Development Bank of India (SIDBI) National Bank for Financing Infrastructure and Development (NaBFID) Non-Banking Financial Companies (NBFCs) for all layers – Deposit taking NBFC (NBFC-D) NBFC-Investment and Credit Companies (NBFC-ICC) NBFC-Factor  NBFC-Micro...
Post a Comment
Read more

Credit Facilities – Finance to Non-Banking Financial Companies (NBFCs)

Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable in respect of finance to Non-Banking Financial Companies (NBFCs). To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Primary (Urban) Co-operative Banks (UCBs) All India Financial Institutions (AIFIs) regulated by RBI – Export Import Bank of India (EXIM Bank) National Bank for Agriculture and Rural Development (NABARD) National Housing Bank (NHB) Small Industries Development Bank of India (SIDBI) National Bank for Financing Infrastructure and Development (NaBFID) What are the conditions on finance to NBFCs? Commercial Banks and SFBs The bank shall extend need based working capital facilities as well as term loans to NBFCs registered with the RBI and engaged in infrastructure financing, equipment leasing, hire-purchase, l...
Post a Comment
Read more

Credit Facilities – Gold Metal Loans

Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable to gold metal loans. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) What is Gold Metal Loans’ (GML)? Gold Metal Loans (GML) mean loans extended by eligible banks to specified borrowers in the form of gold metal. GMS-linked GML – means GML extended by designated banks under the Gold Monetization Scheme, 2015 (GMS), utilising – (i) the gold deposit accepted by them as Short-term Bank Deposit under the GMS, or (ii) gold borrowed from other designated banks under GMS, and where the repayment can be either in gold or in cash or in a combination of both. Import-linked GML – means GML extended by nominated banks authorized to import gold, where the source of gold metal lent is gold imported by them, and where repayment h...
Post a Comment
Read more