Domestic Systemically Important Banks (D-SIBs)

Context

The Reserve Bank of India (RBI) has retained State Bank of India (SBI), HDFC Bank, and ICICI Bank as Domestic Systemically Important Banks (D-SIBs) for 2023.

 

What Are D-SIBs?

• Definition:
  D-SIBs are banks whose failure could severely disrupt the financial system and economy due to their:
  • Size
  • Complex operations
  • Cross-jurisdictional activities
  • Lack of alternatives (substitutability)
  • Interconnectedness with the financial ecosystem
• ‘Too Big to Fail’ (TBTF):
  These banks are deemed crucial to economic stability, requiring special regulatory oversight to prevent collapse.

 

RBI’s Framework for D-SIBs

1. Implementation:
   • Introduced in 2014 and implemented from 2015.
   • Based on global standards by the Basel Committee on Banking Supervision (BCBS).
2. Assessment Method:
   • RBI evaluates banks annually using their Systemic Importance Scores (SISs).
   • SIS reflects a bank’s significance in the financial system and determines its risk bucket.
3. Capital Surcharge:
   • D-SIBs are required to maintain additional Common Equity Tier 1 (CET1) capital to enhance their resilience.
   • Higher risk buckets attract higher capital surcharges.
4. Global Impact:
   • If a foreign bank with Indian branches is designated as a Global Systemically Important Bank (G-SIB), it must maintain an additional CET1 surcharge proportional to India-specific Risk-Weighted Assets (RWAs).

 

Current D-SIBs in India

1. State Bank of India (SBI)
2. HDFC Bank
3. ICICI Bank

 

Significance of D-SIB Designation

• Financial Stability:
  Ensures these critical banks maintain higher resilience against economic shocks.
• Enhanced Oversight:
  Promotes rigorous regulatory supervision to reduce systemic risks.
• Market Confidence:
  Builds trust among depositors and investors in the stability of these institutions.

 

Challenges for D-SIBs

1. Higher Compliance Costs:
   • Stricter capital and operational requirements.
2. Moral Hazard:
   • Perception of implicit government support could encourage riskier behavior.
3. Operational Complexity:
   • Managing cross-border regulations and interconnected operations.