The Reserve Bank of India (RBI) has named the top three lenders in India – State Bank of India (SBI), ICICI Bank, and HDFC Bank – as Domestic Systemically Important Banks (D-SIBs), or banks that are too big to fail. In other words, these banks are interconnected entities whose failure could potentially impact the entire financial system and cause instability. As a result, they are subject to closer supervision and regulation by the RBI.
A D-SIB may be a bank that's thought-about to be thus necessary to the economic system that its failure might cause important disruption. As a result, these banks area unit needed to keep up higher capital buffers to guard against potential losses and guarantee their stability. In India, the RBI has established a framework for handling D-SIBs, which needs the central bank to disclose the names of selected banks ranging from 2015 and place them in acceptable buckets supported their systematic importance.
How area unit D-SIBs regulated?
In addition to the standard capital conservation buffer, D-SIBs in India area needed to keep up further Common Equity Tier 1 (CET1) capital. According to the RBI’s latest release, SBI should maintain an extra 0.60% CET1 as a share of its risk-weighted assets, whereas ICICI Bank and HDFC Bank should maintain an extra 0.20% each.
Foreign banks with a branch presence in india that are designated as Global Systemically necessary Banks (G-SIBs) should also maintain further CET1 capital surcharges in India as needed by the principles for G-SIBs.
Why these 3 banks selected as D-SIBs?
The RBI announced SBI and ICICI Bank as D-SIBs in 2015 and 2016, respectively. Based on data from banks as of March 31, 2017, HDFC Bank was also classified as a D-SIB, along with SBI and ICICI Bank. The current update is based on data from banks as of March 31, 2022.
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