Liquidity adjustment facility

The Indian central bank's standing arrangement for lending to and borrowing from banks against government securities on a short-term basis.

It is 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.

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

Facility names and structures change. Check the current framework.