Domestic Systemically Important Banks (D-SIBs)

Domestic Systemically Important Banks (D-SIBs)

Subject :Economy

Context:  The Reserve Bank of India (RBI) Monday said State Bank of India, ICICI Bank and HDFC Bank continue to remain Domestic Systemically Important Banks (D-SIBs).

Concept :

• D-SIB means that the bank is too big to fail.
• According to the RBI, some banks become systemically important due to their size, cross-jurisdictional activities, complexity and lack of substitute and interconnection. Banks whose assets exceed 2% of GDP are considered part of this group.

Classification:

• RBI has to disclose names of banks designated as D-SIB. It classifies the banks under five buckets depending on order of importance.
• Based on the bucket in which a D-SIB is, an additional common equity requirement applies. Banks in bucket one need to maintain a 0.15% incremental tier-I capital from April 2018. Banks in bucket three have to maintain an additional 0.45%.
• All the banks under D-SIB are required to maintain higher share of risk-weighted assets as tier-I equity.

Significance:

• Should such a bank fail, there would be significant disruption to the essential services they provide to the banking system and the overall economy.
• The too-big-to-fail tag also indicates that in case of distress, the government is expected to support these banks. Due to this perception, these banks enjoy certain advantages in funding. It also means that these banks have a different set of policy measures regarding systemic risks and moral hazard issues.