Economics • Banking & FinanceMedium
Which of the following describes the operations and functions of the 'Standing Deposit Facility (SDF)' introduced by the Reserve Bank of India?
A. It is a collateralized liquidity adjustment facility where commercial banks borrow funds from the RBI by pledging government securities.
B. It is an uncollateralized liquidity absorption tool that allows the RBI to absorb excess liquidity from commercial banks without needing to provide collateral.✓ Correct Answer
C. It is a specialized foreign currency deposit scheme meant exclusively for Non-Resident Indians.
D. It is a long-term refinancing window provided exclusively for housing finance companies through NHB.
💡 Solution & Explanation
The Standing Deposit Facility allows the Reserve Bank of India to absorb excess systemic liquidity without providing government securities as collateral, operating as an uncollateralized tool. Traditional liquidity adjustment facilities require eligible collateral like securities for borrowing and lending operations.
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