The Standing Deposit Facility (SDF) is a monetary policy concept and a liquidity absorption tool introduced by the Reserve Bank of India (RBI) to manage surplus funds in the banking system. The concept was first recommended by the Urjit Patel Committee report in 2014. Its legal basis was established by an amendment to Section 17 of the RBI Act in 2018, which empowered the RBI to introduce a collateral-free tool for absorbing liquidity.
The SDF was formally introduced on April 8, 2022, to address the problem of persistent excess liquidity in the system, which was estimated at ₹8.5 lakh crore at the time, and to strengthen the monetary policy framework. It works as a mechanism where commercial banks can deposit their surplus funds with the RBI and earn interest, but crucially, the RBI is not required to provide any government securities as collateral in return. This removes the "collateral constraint" that limited the RBI's ability to absorb large amounts of liquidity under the previous system.
The SDF replaced the Fixed Rate Reverse Repo (FRRR) as the floor of the Liquidity Adjustment Facility (LAF) corridor. The LAF corridor now has the Marginal Standing Facility (MSF) rate as the ceiling and the SDF rate as the floor, with the policy Repo Rate in the middle. The SDF rate is set 25 basis points below the policy Repo Rate. Both the SDF and the MSF are "standing facilities," meaning they are available to eligible banks on all days of the week, including weekends and holidays, at the banks' discretion.