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Recently, the Reserve Bank of India (RBI) retained the State Bank of India, HDFC Bank and ICICI Bank as Domestic Systemically Important Banks (D-SIBs).
Domestic Systemically Important Banks (D-SIBs)
D-SIBs are banks that are considered ‘Too Big to Fail’ (TBTF) within the domestic economy due to their size, complexity, and interconnections with the financial system.
These banks are classified based on the potential economic disruption if they fail.
D-SIBs are subjected to additional regulatory measures like capital buffers, stress tests, and recovery and resolution planning
to enhance their resilience and ability to withstand financial shocks.
D-SIBs are classified into different buckets based on their systemic importance scores.
Bucket 1 represents the lowest risk, while Bucket 4 represents the higher risk.
The RBI has placed SBI in bucket 4, HDFC Bank in bucket 3 and ICICI Bank in bucket 1.
Capital Requirements: Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it.
SBI has an additional 0.80% common equity tier 1 (CET1) requirement, HDFC Bank has 0.40%, and ICICI Bank has 0.20%.
The RBI follows a two-step process for identifying D-SIBs.
Sample Selection: Not all banks are assessed. Only those with significant systemic importance based on size (banks with assets over 2% of GDP) are considered.
Systemic Importance Assessment: Based on a range of indicators like lack of substitutability, interconnectedness etc a composite score is calculated for each bank, and those exceeding a certain threshold are classified as D-SIBs.
RBI issued a framework in July 2014 to ensure D-SIBs are well-capitalised to absorb losses and prevent systemic disruptions if they fail.
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