Context:

The Reserve Bank of India has released its latest list of Domestic Systemically Important Banks (D-SIBs), which includes SBI, HDFC Bank, and ICICI Bank.

Domestic Systemically Important Banks (D-SIBs)

D-SIBs are banks that are considered critical to the financial and economic stability of the country. Their failure may result in significant disruption in the banking system and the national economy, therefore they are classified as "Too Big To Fail" (TBTF).

The Reserve Bank of India (RBI) has designated the State Bank of India (SBI), HDFC Bank, and ICICI Bank as Domestic Systemically Important Banks.

The RBI issued a framework for dealing with D-SIBs in July 2014. Since 2015, the RBI has published the names of banks classified as D-SIBs each year.

How are D-SIBs selected by the RBI?

A limited number of banks is selected based on their size, with banks with assets over 2% of the country's GDP.

The systemic importance of these banks is measured using a number of indicators, and banks that go above a certain level are designated as D-SIBs. These banks are then placed into buckets, each with a different capital charge requirement.

Why D-SIBs category been created?

D-SIBs are established to address the systemic risk associated with banks that are too big or interconnected, and their failure could disrupt important banking services and affect the entire economy. To reduce risks, these banks are subject to additional policy measures.

D-SIBs are classified into various buckets based on their systemic importance score. The Reserve Bank has assigned SBI to bucket 4, HDFC Bank to bucket 3, and ICICI Bank to bucket 1.

What are the capital requirements for D-SIBs?

D-SIBs have to maintain additional capital based on their systemic importance bucket. SBI's additional common equity tier 1 (CET1) requirement is 0.80%, HDFC Bank's is 0.40%, and ICICI Bank's is 0.20% of risk-weighted assets.

Global Systemically Important Banks (G-SIBs)

The Financial Stability Board (FSB) identifies G-SIBs as globally significant banks based on their size, cross-jurisdictional activities, and interconnectedness.

The 2023 list included 29 G-SIBs, including major banks such as JP Morgan Chase, Bank of America, Citigroup, HSBC, and Agricultural Bank of China. India does not have any GSIBs.

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DOMESTIC SYSTEMICALLY IMPORTANT BANKS (D-SIBs)

Source:

Business Today

PRACTICE QUESTION

Q.Consider the following statements:

1. The Reserve Bank of India (RBI) has categorized 5 banks as Domestic Systemically Important Banks (D-SIBs).

2. They are subject to higher capital requirements to ensure stability and reduce the risks of failure.

Which of the above statements is/are correct?

A) 1 only

B) 2 only

C) Both 1 and 2

D) Neither 1 nor 2

Answer: B

Explanation:

Statement 1 is incorrect:

The Reserve Bank of India (RBI) has classified the State Bank of India, HDFC Bank, and ICICI Bank as the Domestic Systemically Important Banks (D-SIBs).

Statement 2 is correct:

The D-SIB framework requires systemically important banks to meet additional Common Equity Tier 1 (CET1) requirements based on their assigned bucket.

DOMESTIC SYSTEMICALLY IMPORTANT BANKS (D-SIBS)