SBI, HDFC, ICICI Are ‘Too Big To Fail’ Banks; Strict Monitoring Rules By Govt
The banking regulator Reserve Bank of India (RBI) has released the list of Domestic Systemically Important Banks (D-SIBs) for 2021, which essentially means that these banks are perceived to be ‘Too Big To Fail’.
RBI has identified the state-owned lender State Bank of India and two private lenders ICICI Bank and HDFC Bank as Domestic Systemically Important Banks for 2021, same as it did in 2020.
What are D-SIBs?
Domestic Systemically Important Banks are important banks for a country, and are perceived as too big to fall. RBI decides these banks based upon parameters like size, complexity, lack of substitutability and interconnectedness of the banks.
In times of distress, the government supports such banks and it must be noted that if such a bank fails, it would lead to disruption in essential services and the overall economic health of the country.
In 2020 too, RBI had elected these three public and private lenders as D-SIBs.
SBI, ICICI Bank and HDFC Bank are re-identified as D-SIBs under the same bucketing structure as the 2020 list of D-SIBs.
The additional Common Equity Tier 1 (CET1) requirement 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, states RBI’s press release.
According to this, SBI has been put under the third bucket of Additional Common Equity Tier 1 requirement. The public sector lender is expected to maintain the percentage of Risk-Weighted Assets (RWAs) at 0.6%.
Additionally, the two private lenders HDFC Bank and ICICI Bank are placed under the first bucket of Additional Common Equity Tier 1 requirement, and are required to maintain 0.2% RWAs each.
No new banks have been added to the Reserve Bank of India’s list of Domestic Systemically Important Banks (D-SIBs) in 2021.