Consider the following statements regarding Domestic Systemically Important Banks
(DSIBs) in India —
1. D-SIBs are banks whose failure could lead to significant economic disruptions and
hence, they are deemed "Too Big To Fail" by the RBI.
2. The RBI mandates D-SIBs to maintain an additional Common Equity Tier 1 (CET1)
capital requirement based on their systemic importance bucket.
3. Only domestic banks that meet the size criteria and exceed 2% of GDP are included
in the DSIBs sample for assessment.
4. As of the latest list, the RBI has designated SBI, HDFC Bank, and ICICI Bank as D-
SIBs in India.
Which of the statements given above are correct?
Explanation - Domestic Systemically Important Banks (D-SIBs) are considered vital to
the financial system due to their large size, complexity, and integration within both
domestic and global conomies. If such a bank were to fail, it could trigger widespread
economic disruption and financial instability. This has led to their classification as "Too
Big To Fail" (TBTF), with the expectation that the government would intervene to prevent
their collapse during financial crises.
The RBI has categorised D-SIBs into different buckets according to their Systemic
Importance Scores (SISs). Each bucket has a specified CET1 capital requirement, which
requires these banks to hold extra capital as a buffer against financial distress. This
additional CET1 capital acts as a safeguard to absorb potential losses, helping these
banks remain stable during adverse financial
conditions. In its framework for identifying D-SIBs, the RBI includes banks that meet a
certain size
threshold, with a minimum size of 2% of the country’s GDP. This threshold ensures that
only banks with substantial systemic importance are considered, as smaller banks would
have a lower impact on financial stability. As per the RBI’s latest assessments, State
Bank of India (SBI), HDFC Bank, and ICICI Bank have been classified as D-SIBs. SBI
was placed in the highest bucket (Bucket 4), HDFC Bank in Bucket 3, and ICICI Bank in
Bucket 1. These classifications determine the additional capital requirement, with SBI
needing to hold a 0.80% CET1 capital surcharge, HDFC Bank 0.40%, and ICICI Bank
0.20%.
Explanation - Domestic Systemically Important Banks (D-SIBs) are considered vital to
the financial system due to their large size, complexity, and integration within both
domestic and global conomies. If such a bank were to fail, it could trigger widespread
economic disruption and financial instability. This has led to their classification as "Too
Big To Fail" (TBTF), with the expectation that the government would intervene to prevent
their collapse during financial crises.
The RBI has categorised D-SIBs into different buckets according to their Systemic
Importance Scores (SISs). Each bucket has a specified CET1 capital requirement, which
requires these banks to hold extra capital as a buffer against financial distress. This
additional CET1 capital acts as a safeguard to absorb potential losses, helping these
banks remain stable during adverse financial
conditions. In its framework for identifying D-SIBs, the RBI includes banks that meet a
certain size
threshold, with a minimum size of 2% of the country’s GDP. This threshold ensures that
only banks with substantial systemic importance are considered, as smaller banks would
have a lower impact on financial stability. As per the RBI’s latest assessments, State
Bank of India (SBI), HDFC Bank, and ICICI Bank have been classified as D-SIBs. SBI
was placed in the highest bucket (Bucket 4), HDFC Bank in Bucket 3, and ICICI Bank in
Bucket 1. These classifications determine the additional capital requirement, with SBI
needing to hold a 0.80% CET1 capital surcharge, HDFC Bank 0.40%, and ICICI Bank
0.20%.
