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Standing Deposit Facility (SDF): meaning and purpose
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The standing deposit facility (SDF) is a window where banks can park surplus overnight funds with the RBI and earn interest, without the RBI giving government securities in return. It sets the floor of the policy rate corridor: no bank has a reason to lend in the money market below the SDF rate when it can deposit with the RBI at that rate.
What makes it different from reverse repo
In a reverse repo the RBI must hand over securities as collateral. In the SDF it does not. That matters when the system holds a large surplus of cash, because the RBI's stock of tradable securities is limited. The SDF removes that constraint and lets it absorb liquidity of any size.
| Feature | Reverse repo | SDF |
|---|---|---|
| Collateral from RBI | Yes, government securities | No |
| Role today | Window kept at RBI's discretion | Floor of the LAF corridor |
| Who benefits | Banks with surplus cash | Banks with surplus cash |
Background
A 2018 amendment to the RBI Act made it possible for the RBI to pay interest on such deposits, and the facility was launched in the policy announcement of 8 April 2022. It was set 25 basis points below the repo rate, while the marginal standing facility was set 25 basis points above it. This pair of rates plus repo is the corridor used in the liquidity adjustment facility.
How bank exams ask about it
The favourite question is "which facility is the floor of the LAF corridor", with distractors such as reverse repo, MSF and bank rate. Another common stem asks which window absorbs liquidity without collateral. A third compares the three corridor rates, so keep the order straight: SDF < repo < MSF. This sits in the monetary policy block of banking awareness, and RBI Grade B papers can go deeper into liquidity operations.
Where to find the latest rate
The SDF rate is stated in every Monetary Policy Statement at rbi.org.in. Use that source for any figure.
Frequently asked questions
Is the SDF a loan from the RBI?
No. It is a deposit by the bank with the RBI, so the bank is the lender and the RBI pays the interest.
Can the RBI change how wide the corridor is?
Yes. The 25 basis point gap on either side of repo is a policy choice that the RBI has changed in the past, as it did during the Covid period.
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- Reverse repo rateReverse repo rate is what the RBI pays when it borrows from banks against government securities. Meaning, how it differs from repo and its status after SDF.
- Repo rateRepo rate is the rate at which the RBI lends short-term money to banks against government securities. How it works, what a change does and how exams ask it.
- Marginal standing facilityThe marginal standing facility is the RBI window where banks borrow overnight in an emergency by dipping into their SLR holdings. Meaning, rate and exam facts.
- Liquidity adjustment facilityThe liquidity adjustment facility is the RBI's daily window for injecting or absorbing cash. Meaning, repo, SDF and MSF corridor, history and exam questions.
- Open market operationsOpen market operations are the RBI buying or selling government securities to add or drain cash. Meaning, OMO vs LAF, Operation Twist and exam facts.
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