Explanation:

Standing Deposit Facility

• The standing deposit facility allows the RBI to absorb excess cash from the economy by sucking liquidity from commercial banks without giving government securities in return to the lenders. The RBI has fixed the SDF rate at 3.75 per cent.
• Under the SDF, the banks can place deposits with the RBI on an overnight basis. The RBI, however, retains the flexibility to absorb liquidity for longer tenors under the SDF with appropriate pricing, as and when the need arises. All liquidity adjustment facility (LAF) participants will be eligible to participate in the SDF scheme, according to the RBI’s website.

SDF vs Reverse Repo

• Both SDF and reverse repo rate are used by the central bank to absorb liquidity in the system. The difference is that through reverse repo operations, the RBI needs to deposit collateral or government securities to borrow from commercial banks; while SDF does not require any such collateral.

Hence both statements are correct.