Domestic Systemically Important Banks
Kartavya Desk Staff
Source: IE
Context: The Reserve Bank of India (RBI) on Wednesday retained the State Bank of India, HDFC Bank and ICICI Bank as Domestic Systemically Important Banks (D-SIBs).
About Domestic Systemically Important Banks (D-SIBs):
• The RBI had first announced the framework dealing with D-SIBs in 2014.
• What is D-SIBs? Banks classified as “Too Big To Fail (TBTF)” due to their size, interconnectedness, and critical role in the economy. Their failure could disrupt the financial system and economic activity.
• Banks classified as “Too Big To Fail (TBTF)” due to their size, interconnectedness, and critical role in the economy.
• Their failure could disrupt the financial system and economic activity.
• Which Banks are D-SIBs? State Bank of India (SBI) (2015) ICICI Bank (2016) HDFC Bank (2017)
• State Bank of India (SBI) (2015)
• ICICI Bank (2016)
• HDFC Bank (2017)
• Need for D-SIBs Prevent systemic risk and ensure the uninterrupted availability of essential banking services. Reduce moral hazard by imposing additional capital requirements and regulatory oversight.
• Prevent systemic risk and ensure the uninterrupted availability of essential banking services.
• Reduce moral hazard by imposing additional capital requirements and regulatory oversight.
• Different Buckets under D-SIBs Banks are placed in buckets based on systemic importance: SBI: Bucket 4 HDFC Bank: Bucket 3 ICICI Bank: Bucket 1
• Banks are placed in buckets based on systemic importance: SBI: Bucket 4 HDFC Bank: Bucket 3 ICICI Bank: Bucket 1
• SBI: Bucket 4
• HDFC Bank: Bucket 3
• ICICI Bank: Bucket 1
• Capital Requirements Additional Common Equity Tier 1 (CET1) requirements based on bucket: SBI: 0.80% of Risk Weighted Assets (RWAs). HDFC Bank: 0.40% of RWAs. ICICI Bank: 0.20% of RWAs. Higher surcharges applicable from April 1, 2025.
• Additional Common Equity Tier 1 (CET1) requirements based on bucket: SBI: 0.80% of Risk Weighted Assets (RWAs). HDFC Bank: 0.40% of RWAs. ICICI Bank: 0.20% of RWAs.
• SBI: 0.80% of Risk Weighted Assets (RWAs).
• HDFC Bank: 0.40% of RWAs.
• ICICI Bank: 0.20% of RWAs.
• Higher surcharges applicable from April 1, 2025.
• Selection Criteria Banks with size >2% of GDP are assessed. A composite score is calculated based on size, cross-jurisdictional activity, complexity, substitutability, and interconnectedness. Banks above a threshold score are classified as D-SIBs.
• Banks with size >2% of GDP are assessed.
• A composite score is calculated based on size, cross-jurisdictional activity, complexity, substitutability, and interconnectedness.
• Banks above a threshold score are classified as D-SIBs.
• Global Systemically Important Banks (G-SIBs) Identified by the Financial Stability Board (FSB) in consultation with the Basel Committee on Banking Supervision (BCBS). 2023 G-SIB list includes JP Morgan Chase, HSBC, Bank of China, BNP Paribas, etc.
• Identified by the Financial Stability Board (FSB) in consultation with the Basel Committee on Banking Supervision (BCBS).
• 2023 G-SIB list includes JP Morgan Chase, HSBC, Bank of China, BNP Paribas, etc.
Insta Links:
• Basel-3-capital-framework