Q. With reference to the Domestic Systemically Important Banks (D-SIBs), which of the following statements is/are correct?
1.D-SIBs are banks whose failure might seriously disrupt the financial system.
2.The primary purpose of identifying D-SIBs is to provide government bailouts to these banks in case of failure.
3.Profitability and financial health are some of the factors considered when identifying D-SIBs in India.
Which of the statements given above is/are correct?
Explanation –
Statement 1 is correct. Domestic Systemically Important Banks (D-SIBs) are those banks whose failure has the potential to seriously disrupt the overall financial system and economy due to their systemic importance.
Statements 2 and 3 are incorrect. The primary purpose of identifying D-SIBs is not to provide government bailouts. Instead, the identification is part of a regulatory framework to ensure that these banks are subject to additional regulatory requirements and higher capital buffers to mitigate the risks they pose to the financial system. The idea is to prevent their failure and minimize the impact on the economy. Profitability and financial health are not typically considered as direct factors when identifying Domestic Systemically Important Banks (D-SIBs) in India. The criteria for identifying D-SIBs commonly include factors such as size, interconnectedness, complexity, and cross-jurisdictional activities.
Recently, the RBI has retained the status of the State Bank of India, HDFC Bank and ICICI Bank as Domestic Systemically Important Banks (D-SIBs).
Source: Forum IAS
