Liquidity adjustment facility

The RBI's framework for adjusting the banking system's liquidity day to day. It lends against government securities through the repo and variable rate repo auctions, absorbs surplus through the standing deposit facility, which needs no collateral and has been the floor of the corridor since April 2022, and lends at the top of the corridor through the marginal standing facility.

It's the mechanism by which the policy rate becomes an actual money-market rate. Banks short of funds borrow at the upper end of the corridor and banks with surplus place funds at the lower end, which keeps overnight rates inside the band.

Published daily, the net position across the system shows whether the banking system is in surplus or deficit, which makes it a useful real-time liquidity indicator.

Facility names and structures change, so check the current framework before you rely on it.