About SDB

• In 2022, the Reserve Bank of India (RBI) introduced the Standing Deposit Facility (SDF), allowing banks to park their excess funds at a higher rate but without taking any collateral from the central bank. 
• Currently, the SDF rate has been set at an interest rate of 6.25%, higher than the 3.35% fixed reverse repo rate, which is the rate at which banks park their excess funds with the RBI in exchange of government securities as collateral.
• SDF is a tool to absorb excess liquidity, as it will be more attractive for the commercial banks to pump liquidity back to the central bank due to higher returns, while for the central bank it would not need to offer any security to the commercial bank.

Features of SDF

• SDF has the following features viz; 
  • it is a monetary policy instrument to absorb liquidity without any collateral with an interest rate of 6.25%;
  • it is operated on an overnight basis, with the flexibility to absorb liquidity for longer tenor with appropriate pricing; 
  • deposits under the SDF shall not be reckoned as balances eligible for the maintenance of the cash reserve ratio (CRR), but shall be an eligible asset for maintenance of the statutory liquidity ratio (SLR).