Banks Profit from SDF-TREPS Arbitrage Amidst Liquidity Surplus

• Banks are leveraging the spread between RBI's SDF and TREPS rates for risk-free arbitrage opportunities.
• The arbitrage allows banks to earn up to 0.70 percent by raising funds in TREPS and deploying them in SDF.
• The spread has widened significantly, peaking at 0.76 percent on February 4, making the strategy attractive.
• Surplus liquidity in the banking system, following RBI's infusion measures, has driven down overnight market rates.
• RBI's deliberate stance of not conducting VRRR operations keeps overnight rates below SDF, influencing market dynamics.