Prior to, this rate was called the Reverse Repurchase rate of the Central bank.
But for borrowers who have seen lending rates fall sharply the past year, the party may be over.
But why does the RBI need an unbridled mechanism to manage liquidity?
According to the Finance Act that made the launch of SDF, a separate clause shall be inserted in the RBI Act: The accepting of money as deposits, repayable with interest, from banks or any other person under the Standing Deposit Facility Scheme, as approved.Repo rate that RBI sets at every monetary policy is the rate at which banks borrow funds, for which they pledge government securities.This concept, first recommended by the Urjit Patel committee report in 2014, may soon become part of the central banks toolkit to manage liquidity.As a result, credit institutions normally only use the standing facilities in the absence of other alternatives.What happens when banks have excess funds?The immediate fallout of excess liquidity in the past few months has been the sharp cuts in bank deposit rates.This will allow the RBI to absorb surplus funds from banks without collateral.The casino online roulette free SDF will allow the RBI to suck out liquidity without offering government securities as collateral.Standing Deposit Facility allows the RBI to absorb liquidity from commercial banks without giving government securities in return to the banks.
And with the RBI increasing the reverse hp compaq nc6120 memory upgrade repo rate by 25 basis points to 6 per cent in the April policy, banks now earn more on these funds.
Lets simplify this by going to the basics.
Here too, government securities act as collateral.The oddsring bonus code interest rate on the marginal lending facility (marginal lending rate) is normally substantially higher and the rate on the deposit facility (deposit rate) substantially lower than the corresponding money market rate.They lend it to the RBI at the reverse repo rate that is lower than the repo rate.So, why is the RBI toying with the idea of a new instrument to suck out liquidity?It impacts your financial fate.
In this sense, the Standing Deposit Facility (SDF) is a collateral free arrangement meaning that RBI need not give collateral for liquidity absorption.
The deposit facility allows counterparties to deposit funds with the Eurosystem.