Reserve Bank of India (RBI) has released its 2017 list of the Domestic Systemically Important Banks (D-SIBs). The list identifies private sector lender HDFC Bank Ltd as a D-SIB. With this inclusion in the list, the HDFC has joined State Bank of India (SBI) and ICICI Bank Ltd, which has been tagged as D-SIBs or too-big-to-fail for the consecutive third year.
Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it. In case a foreign bank having the branch presence in India is a Global Systemically Important Bank (G-SIB), it has to maintain additional CET1 capital surcharge in India as applicable to it as a G-SIB, proportionate to its Risk Weighted Assets (RWAs) in India.
That with such classification failure or collapse of these lenders can have a cascading impact on the entire financial system and the economy of the country. SIBs are subjected to higher levels of supervision so as to prevent disruption of financial services in the event of any failure. The Reserve Bank had issued the Framework for dealing with Domestic Systemically Important Banks (D-SIBs) on 22 July 2014. The D-SIB Framework requires the Reserve Bank to disclose the names of banks designated as D-SIBs every year and place these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs). The first such list was released in August 2015 and had names of SBI and ICICI Bank.