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Sources: This post is based on the article “RBI releases Domestic Systemically Important Banks (D-SIBs) of 2021” published in “Live Mint” on 2nd Jan 2024.
Why in news?
Recently, the Reserve Bank of India (RBI) issued the list of Domestic Systemically Important Banks (D-SIBs).
Which banks are on the list of Domestic Systemically Important Banks (D-SIBs)?
1) The RBI has retained the State Bank of India, HDFC Bank and ICICI Bank as Domestic Systemically Important Banks (D-SIBs).
2) SBI has been shifted from bucket 3 to bucket 4, and HDFC Bank from bucket 1 to bucket 2. ICICI Bank continues to maintain its previous categorization of bucket 1.
3) The higher D-SIB surcharge for SBI and HDFC Bank will be applicable from April 1, 2025. The additional Common Equity Tier 1 (CET1) requirement will be in addition to the capital conservation buffer.
What are the Domestic Systemically Important Banks (D-SIBs)?
1) D-SIB are banks whose potential failure might seriously disrupt the financial system due to the bank’s size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness.
2) Systemically Important Banks (SIBs) are hence considered ‘Too Big to Fail (TBTF)’.
3) The framework for handling Domestic Systemically Important Banks (D-SIBs) was published by RBI in 2014 and was effective from 2015.
4) RBI places these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs). Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it.
5) In case a foreign bank having a branch presence in India is a Global Systemically Important Bank (G-SIB), it has to maintain additional CET1 capital surcharge in India as applicable to it as a G-SIB, proportionate to its Risk Weighted Assets (RWAs) in India.
UPSC Syllabus- Indian economy- Banking
