RBI's SDF sees record high of Rs 2.6 lakh crore in June quarter
Reserve Bank of India
's
Standard Deposit Facility
(SDF) hit a record high of ₹2.6 lakh crore in the June 2025 quarter-the highest since the facility was launched in April 2022. The total SDF balance in the June quarter increased three times year-on-year to ₹195.5 lakh crore, according to the RBI data.
Banks have preferred to park the
liquidity glut
back with RBI this fiscal year so far amid lower credit offtake. The SDF allows banks to park surplus funds with the RBI overnight at a rate 25 basis points below the repo rate. The current SDF rate is 5.25%.
To prevent this excess liquidity from bringing overnight rates below the repo rate, the RBI has initiated taking measures such as
Variable Rate Reverse Repo
(VRRR) auctions to absorb excess funds.
According to Madan Sabnavis, chief economist,
Bank of Baroda
, banks are sitting on surplus funds after the RBI's liquidity injections between January and March. "However, with
credit growth
on a downward trajectory, they are unable to channel this excess into new loans," he said.
Agencies
Banks have been using the SDF route more often since its launch three years ago, as it does not involve a collateral, unlike for the reverse repo mechanism, where RBI has to transfer government securities to banks. However, the extent of funds parked in SDF have catapulted sharply in recent months. The average monthly funds in SDF rose year-on-year by 113%, 186%, and 340% in April, May, and June this year respectively.
"Banks have the funds, but credit demand is not strong enough," said the chief financial officer of a private bank adding that the first quarter of a fiscal year is typically slow for loan growth.
The RBI began injecting funds in January to counter a sharp decline in liquidity, primarily driven by its aggressive interventions in the foreign exchange market. The central bank had introduced several measures, including long-term repo auction, forex swaps and open market purchase of government securities. In December, it had cut the CRR by 50 basis points, releasing ₹1.16 lakh crore into the system. As a result, liquidity in the banking system swung to surplus from April. However, with the economy slowing and regulatory curbs by RBI on unsecured loans, credit growth is on a decline-falling to 9.5% in the June quarter from nearly 16% in FY24.
To avoid adverse effects of the excess liquidity, RBI has been undertaking VRRR auctions. In July so far, the RBI has absorbed nearly ₹3.5 lakh crore through three such auctions. Unlike fixed-rate facilities, RBI does not set a predefined interest rate under VRRR.
Instead, banks submit bids indicating the rate at which they are willing to park their surplus funds. "We expect to see continued liquidity-draining operations by the RBI to ensure there is not an overhang when credit demand remains weak." said Dhiraj Nim, an economist at ANZ.
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