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RBI Keeps SBI, ICICI, HDFC as Domestic Systemically Important Banks

The Reserve Bank of India said SBI, ICICI Bank, HDFC Bank remain domestic systemically important banks (D-SIBs). D-SIBs are those interconnected entities whose failure can impact the whole of the financial system and create instability. In addition to the usual capital conservation buffer, D-SIBs will need to maintain additional Common Equity Tier 1 (CET1). As per the RBI’s latest press release, SBI will have to maintain an additional 0.6 per cent CET1 as a percentage of its risk-weighted assets. Similarly, ICICI Bank and HDFC Bank need to maintain additional 0.2 per cent each.

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Why Is The Need of Additional capital conservation buffer:

The additional CET1 required for D-SIBs was phased-in from April 1, 2016 and became fully effective from April 1, 2019. The additional CET1 requirement will be in addition to the capital conservation buffer.

The Reserve Bank had issued the framework for dealing with D-SIBs on July 22, 2014. The D-SIB framework requires the Reserve Bank to disclose the names of banks designated as D-SIBs starting from 2015 and place 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.

A Continuity In This:

The Reserve Bank had announced SBI and ICICI Bank as D-SIBs in 2015 and 2016. Based on data collected from banks as on March 31, 2017, HDFC Bank was also classified as a D-SIB, along with SBI and ICICI Bank. The current update is based on the data collected from banks as on March 31, 2022.

About Domestic Systemically Important Banks:

  • D-SIBs are financial institutions that are large enough where they cannot be allowed to fall.
  • RBI places D-SIBs in appropriate buckets depending upon their Systemic Importance Scores (SISs). 
  • The central bank’s current update on D-SIBs is based on the data collected from banks as of March 31, 2021. 
  • A failure of any of these banks can lead to systemic and significant disruption to essential economic services across the country and can cause an economic panic.
  • Based on the bucket in which a D-SIB is placed, an additional common equity requirement is applied to it.
    • Under bucket 1, banks require 0.2 per cent of additional common equity Tier 1 capital as a percentage of risk-weighted assets (RWAs), and under bucket 3, banks require 0.6 percent of additional common equity Tier 1 capital as a percentage of RWAs.
      • SBI is placed in the third bucket and private sector lenders ICICI Bank and HDFC Bank fall under bucket 1.

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