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

Report of the Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector

Reserve Bank of India (RBI) has released the report of the committee to develop a framework for responsible and ethical enablement of artificial intelligence (FREE-AI) in the financial sector. Committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector In the financial sector, Artificial Intelligence (AI) has the potential to unlock new forms of customer engagement, enable alternate approaches to credit assessment, risk monitoring, fraud detection, and offer new supervisory tools. At the same time, increased adoption of AI could lead to new risks like bias and lack of explainability, as well as amplifying existing challenges to data protection, cybersecurity, among others. To encourage the responsible and ethical adoption of AI in the financial sector, the committee to develop a Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) in the Financial Sector (Chairperson: Dr. Pushpak B...
Post a Comment
Read more

Lending against Gold and Silver collateral

Reserve Bank of India (RBI) has issued directions on lending against the collateral of gold and silver. To whom are the directions applicable? The directions are applicable to the following regulated entities (REs) – Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks, but excluding Payments Banks). Primary (Urban) Co-operative Banks (UCBs) & Rural Co-operative Banks (RCBs), i.e., State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs). Which loans are covered under the directions? The directions shall apply to all loans offered by an RE for the purpose of consumption or income generation (including farm credit) where eligible gold or silver collateral is accepted as a collateral security. What is eligible collateral? Eligible collateral means the collateral of jewellery, ornaments or coins made of gold or silver. A lender shall not grant any ad...
Post a Comment
Read more

All about RBI Integrated Ombudsman Scheme, 2021

Filed a complaint against a bank / financial institution but haven’t received a reply for more 30 days? Or received a reply but not satisfied with the resolution offered by the bank / financial institution? Or the complaint was rejected by the bank / financial institution? You can approach RBI Ombudsman under the RBI Integrated Ombudsman Scheme, 2021. What is RBI Integrated Ombudsman Scheme (RBI-IOS), 2021? RBI-IOS was launched on November 12, 2021, by integrating the existing 3 Ombudsman schemes of RBI. RBI-IOS adopts ‘One Nation One Ombudsman’ approach by making the RBI Ombudsman mechanism jurisdiction neutral. It provides cost-free redress of customer complaints involving deficiency in services rendered by entities regulated by RBI. Which schemes are integrated in RBI-IOS? RBI-IOS integrates following existing schemes of RBI – Schemes Powers derived from Entities covered Banking Ombudsman Scheme, 2006 Section 35A of BR Act, 1949 S...
Post a Comment
Read more

Investments in Debt Instruments by Non-residents

Reserve Bank of India (RBI) has issued directions on investments in debt instruments by non-residents. What are the channels for investments in debt instruments by non-residents? General Route – for investment in Government securities and corporate debt securities by Foreign Portfolio Investors (FPIs) subject to specified investment limits and macro-prudential limits. Voluntary Retention Route (VRR) – for investments in Government securities and corporate debt securities, free of certain macro-prudential limits applicable to FPI investments in debt markets under the General Route, by FPIs that commit to remain invested for a stipulated retention period. Fully Accessible Route (FAR) – for investments by non-residents in certain specified categories of Central Government securities (‘specified securities’) without any restriction. Scheme for Trading and Settlement of Sovereign Green Bonds (SGrBs) issued by the Central Government by eligible foreign investors in the International Finan...
Post a Comment
Read more

Continuous Clearing and Settlement on Realisation in Cheque Truncation System (CTS)

Reserve Bank of India (RBI) has issued direction on continuous clearing and settlement on realisation in Cheque Truncation System (CTS). What is Cheque Truncation System (CTS)? Cheque Truncation System (CTS) involves halting the physical movement of the cheque and its replacement by images of the instrument and the corresponding data contained in the MICR line.  In CTS, 3 images are taken of each cheque – front Gray Scale, front Black & White and back Black & White. MICR (Magnetic Ink Character Recognition) is a 9-digit code printed at the bottom of cheques using magnetic ink – first 3 digits indicate City Code, middle 3 digits indicate Bank Code and the last 3 digits indicate Bank Branch Code. Only CTS-2010 standards compliant instruments can be presented for clearing through CTS. The presenting banks which truncates the cheques need to preserve the physical instruments for 10 years. From when will the continuous clearing and settlement on realisation in CTS be implemented...
Post a Comment
Read more