Note4Students
From UPSC perspective, the following things are important :
Prelims level: Domestic Systemically Important Banks (D-SIBs)
Why in the News?
The RBI designated SBI, HDFC Bank, and ICICI Bank as Domestic Systemically Important Banks (D-SIBs) for 2024.
Current D-SIBs in India:
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What are Domestic Systemically Important Banks (D-SIBs)?
- D-SIBs are banks that are critical to the stability of a country’s financial system.
- They are often termed “Too Big To Fail” (TBTF) because their failure could lead to significant disruptions in the economy.
- The RBI identifies D-SIBs annually.
- The framework for recognizing these banks was issued in July 2014.
- The RBI has been publishing an annual list of D-SIBs since 2015.
D-SIBs are placed in different buckets based on systemic importance scores. Higher bucket rankings require greater capital requirements to absorb losses.
- SBI is in Bucket 4.
- HDFC Bank is in Bucket 3.
- ICICI Bank is in Bucket 1.
D-SIBs must maintain additional Common Equity Tier 1 (CET1) capital based on their bucket.
- SBI: 0.80% of Risk Weighted Assets (RWAs).
- HDFC Bank: 0.40%
- ICICI Bank: 0.20%
Global Systemically Important Banks (G-SIBs):
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Benefits of D-SIB Classification
- It ensures financial stability by requiring additional capital buffers for resilience during economic stress.
- It increases public confidence through enhanced monitoring and regulation.
- It receives improved supervisory attention, leading to better governance and controls.
- It prepares D-SIBs for financial shocks with additional CET1 and stress-testing requirements.
- It often benefits from higher credit ratings, lowering borrowing costs and improving access to capital.
PYQ:[2018] Consider the following statements:
Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 |
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