Source: BS
Context:
The Reserve Bank of India (RBI) reassured markets regarding HDFC Bank after the resignation of its chairman, stating that the bank remains a Domestic Systemically Important Bank (D-SIB) with strong governance and financial stability.
What are Systemically Important Banks?
- Known as Domestic Systemically Important Banks (D-SIBs) in India
- Banks whose failure can:
- Disrupt the entire financial system
- Trigger economic instability
- Often referred to as:
- “Too Big to Fail” institutions
Key Features of D-SIBs
1. Systemic Importance
- Large size, extensive operations, and strong interlinkages with:
- Financial institutions
- Markets
- Economy
2. RBI Framework (2014)
- Introduced by RBI in 2014
- Banks evaluated annually using:
- Systemic Importance Score (SIS)
3. Bucket Classification
- Banks placed into different risk buckets
- Higher bucket → higher regulatory requirements
4. Additional Capital Requirement
- Must maintain extra capital buffer:
- Common Equity Tier-1 (CET1)
D-SIBs in India (Current List)
- State Bank of India
- HDFC Bank
- ICICI Bank
Why are D-SIBs Important?
1. Financial Stability
- Their stability ensures:
- Confidence in banking system
- Smooth credit flow
2. Risk Containment
- Prevents systemic crises and contagion effects
3. Enhanced Regulation
- Subject to:
- Stricter supervision
- Recovery and resolution planning
Classification of Banks in India
1. Ownership-Based
- Public Sector Banks
- Private Sector Banks
- Foreign Banks
2. Functional
- Commercial Banks
- Small Finance Banks
- Payments Banks
3. Regulatory
- Scheduled vs Non-Scheduled Banks
- Differentiated Banks
- D-SIB classification cuts across all categories
