Banking Sector Reforms

RBI released list of Domestic Systemically Important Banks (D-SIBs)

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:

  • As of 2024, the State Bank of India (SBI), HDFC Bank, and ICICI Bank are classified as D-SIBs.
  • SBI was classified as a D-SIB in 2015, ICICI Bank in 2016, and HDFC Bank in 2017.

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):

  • On the global stage, G-SIBs are designated by the Financial Stability Board (FSB).
  • G-SIBs include large international banks such as JP Morgan Chase and HSBC.
  • Foreign banks in India that qualify as G-SIBs are required to hold additional CET1 capital in India, proportional to their global risk-weighted assets.

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.

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