The Reserve Bank of India (RBI) has announced that SBI, ICICI and HDFC Banks would continue as Domestic Systemically Important Banks (D-SIBs) for 2018. RBI had initiated the recognition as D-SIBs from 2015 and places these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs).
As a result, banks enjoy certain advantages in funding markets. Inclusion in the list gives additional comfort to investors that these banks won’t be allowed to fail and therefore, borrowing costs of these banks from the markets are cheaper than their peers.
1. The recognition as Domestic Systemically Important Banks (D-SIBs) implies that banks are too big to fail. This creates an expectation of government support for them in times of financial distress.
2. SBI in the third bucket was setting aside 0.45 percent of its assets as an additional capital requirement and have to set aside 0.60 percent of its risk-weighted assets.
3. Inclusion in D-SIB also implies that the failure of any of these banks would have a cascading effect on the Indian financial system.
4. These D-SIBs are required to maintain an additional common equity requirement based on the bucket in which a D-SIB is placed.
5. ICICI Bank and HDFC which are in the fifth bucket are required to set aside 0.20 percent Bank’s capital requirement from 0.15 percent now.