Why in News?
Reserve Bank of India(RBI) has retained SBI, ICICI and HDFC Bank in Domestic Systemically Important Banks (D-SIBs) list or banks that are considered as “Too Big To Fail”.
- Domestic Systemically Important Banks(D-SIBs): D-SIBs are banks that are Too Big To Fail(TBTF). According to RBI, banks become D-SIBs 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.
- Significance of D-SIBs:
- Failure of such banks will result into significant disruption to the essential banking services to banking system and the overall economy.
- D-SIB tag also indicates that in case of distress, the government is expected to support these banks.
- They are also subjected to higher levels of supervision so as to prevent disruption in financial services in the event of any failure.
- D-SIB Framework: The Reserve Bank had issued the framework for dealing with D-SIBs in 2014. It requires the RBI to disclose the names of banks designated as D-SIBs starting from 2015. RBI places DSIBs in one of the 5 buckets based on their systemic importance scores(SISs).
- As part of this framework, these three banks have to maintain additional Common Equity Tier(CET) 1 compared to other commercial banks.
- CET 1: It is a component of Tier 1 capital that includes ordinary shares and retained earnings.