What are ‘Domestic Systemically Important Banks (D-SIBs)’?

Recently, the Reserve Bank of India has notified Domestic Systemically Important Banks (D-SIBs). As per the notification by RBI, the ICICI Bank, SBI Bank, and HDFC Bank have continued to be identified as Domestic Systemically Important Banks (D-SIBs).

Key Points

• All the three banks have been designated as D-SIBs under the same bucketing structure as in the 2018 list of D-SIBs.
• These banks have been designated on the basis of data collected from banks as of March 31, 2020.
• The D-SIBs framework requires these banks to maintain an additional Common Equity Tier 1 (CET1) requirement.
• This additional CET1 requirement for D-SIBs was introduced on 1^st April 2016 and it finally became fully effective from 1^st April 2019.
• The additional CET1 requirement has to be maintained by D-SIBs in addition to the capital conservation buffer.
• The additional Common Equity Tier 1 requirement as a percentage of Risk-Weighted Assets (RWAs) of SBI is 0.60% and that for ICICI Bank and HDFC Bank is 0.20%.
• D-SIBs are also termed as “too big to fail” entities. It implies they are such banks that don’t have chances to come into financial problems.

Background

• The Framework for Domestic Systemically Important Banks (D-SIBs) was issued by the RBI in July 2014.
• The D-SIB framework requires RBI to designate D-SIBs starting from the year 2015. RBI has to place these banks in suitable buckets depending upon their Systemic Importance Scores (SISs).
• Depending on the bucket a D-SIB is placed, it is applied an additional common equity requirement.
• As per the D-SIB framework methodology and data collected from banks as on March 31, 2015, and March 31, 2016, RBI designated the State Bank of India as D-SIBs on August 31, 2015.
• ICICI Bank Ltd. was designated as D-SIBs on August 25, 2016.
• Later RBI designated State Bank of India, ICICI Bank Ltd. as D-SIBs in September 2017 on the basis of data collected as of March 31, 2017.
• HDFC Bank Ltd. was designated as D-SIBs on March 14, 2019, on the basis of data collected as of March 31, 2018.

In the case of a Global Systemically Important Bank (G-SIB) i.e. a foreign bank having a branch presence in India, an additional CET1 capital surcharge has to be maintained in India as applicable, proportionate to its Risk-Weighted Assets (RWAs) in India.