HDFC Bank Not Among Domestic Systemically Important Banks (Download PDF)

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HDFC Bank, the second largest private sector lender was added to The Reserve Bank of India՚s (RBI) list of Domestic Systemically Important Banks (D-SIBs) . State Bank of India (SBI) and ICICI Bank were added in 2016.

Domestic Systemically Important Banks
  • HDFC Bank third bank added in list of D-SIBs after State Bank of India (SBI) and ICICI Bank.

Systemically Important Banks

  • SIBs are certain big banks in country with country՚s economy dependent upon them
  • Perceived as ‘Too Big To Fail (TBTF) ’

Types of SIBs

  • Global SIBs- identified by BASEL committee on banking supervision
  • Domestic SIBs- identified by central Bank of country- RBI for India

Need for SIBs

  • Following global financial crisis of 2008 exposed vulnerability- problems of certain large and interconnected institutions brought down the entire financial system- affecting real economy.
  • Banks identified as SIBs are monitored for indulging in reckless practices like increased risk-taking, reduction in its market discipline, creation of competitive distortions
  • The need arises because of expectation of government support for avoiding their failure.
  • Policy measures to deal with systemic risks include additional capital against financial emergency.

RBI Framework for Dealing with D-SIBs

  • RBI started listing D-SIBs from August 2015 after creating framework for D-SIBs in July 2014, which requires:
  • RBI must disclose names of banks designated as D-SIBs every year in August from August 2015.
  • Requires D-SIBs be divided into four categories depending upon their Systemic Importance Scores (SISs) .
  • Based on bucket, additional common equity requirement is applied to the listed banks.
  • Foreign Global-SIB bank having branch in India is required to maintain additional CET1 capital surcharge in India, proportionate to its Risk Weighted Assets (RWAs) in India under the D-SIB Framework.
  • Sample of banks is selected for assessment of their Systemic Importance Score, which is based on their size as a percentage of annual GDP.
  • Secondly, additional Common Equity Tier 1 (CET1) requirements in addition to the capital conservation buffer are also applicable to D-SIBs from April 1,2016 in phased manner and will be fully effective from April 1,2019.

- Published/Last Modified on: October 16, 2017

Economy

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