A liquidity tool through which the Reserve Bank of India absorbs surplus funds from banks without giving any collateral in return, forming the floor of the interest-rate corridor.
- Operationalised in April 2022 as the lower bound of the Liquidity Adjustment Facility corridor, replacing the fixed-rate reverse repo as the effective floor.
- Unlike the reverse repo, the SDF is uncollateralised: the RBI does not hand over government securities when it borrows under it.
- The SDF rate is set below the concept repo rate, typically 25 basis points below; the MSF is the same margin above, keeping the corridor symmetric.
- It lets the RBI mop up large surpluses without running down its stock of securities, a constraint that limited reverse-repo operations.
- A quantitative tool of concept monetary policy, used to manage durable surplus liquidity.
The SDF as the new floor of the LAF corridor (uncollateralised, below repo) is a recent, frequently tested update to the monetary-policy framework.
SDF (RBI absorbs liquidity, no collateral, floor) versus reverse repo (RBI absorbs liquidity but gives securities); SDF is below the repo rate, the MSF is above it.
Uncollateralised window through which the RBI absorbs surplus liquidity; floor of the LAF corridor, below the repo rate.