Domestic Systematically Important Banks

Domestic Systematically Important Banks: State Bank of India, ICICI Bank and HDFC Bank continue to hold their status as Domestic Systematically Important Banks (D-SIBs), according to an RBI release dated 04.01.2022.

This shows the significance of these three banks in the Indian banking system due to their size, interconnectedness, lack of substitutability and complexity.

The status of the systematically important bank is to be seen from two angles: The first one is that these banks are too big to fail (TBTF). The other angle is that if they fail, their impacts will be disastrous to the financial system. Therefore, these banks will require special supervisory treatment and compliance conditions, including additional common equity tier 1 (CET1) requirements.

The Common Equity Tier 1 capital includes the core capital that a bank holds in its capital structure. The Systematically Important Banks (SIBs) are required to maintain additional core capital as an extra measure of precaution at the rate applicable to the bucket they are classified in.

The following is the table showing the latest list of D-SIBs in India and the percentage of additional common equity tier-1 requirements of respective buckets of banks.

BucketBankAdditional Common Equity Tier 1 (CET1) requirement as a percentage of Risk-Weighted Assets (RWAs)
3State Bank of India0.60%
1ICICI Bank, HDFC Bank0.20%
Domestic Systematically Important Banks

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Domestic Systematically Important Banks: Background

Identification of D-SIBs and setting up a framework to deal with them was introduced by central banks in 2014. It was on the recommendations of the Financial Stability Board (FSB), an international body that regulates and makes recommendations regarding the global financial system.

FSB found that problems faced by certain large and highly interconnected financial institutions were detrimental to the financial system of all jurisdictions.

There were several occasions that necessitated Government intervention to ensure financial stability in many countries, particularly in aftermath of the global financial crisis of 2008-09. This emphasised the need for setting up new regulatory policies to avoid the chance of failure of SIBs and eliminate possible consequences.

In November 2011, the Basel Committee on Banking Supervision (BCBS) created a framework for identifying the Global Systemically Important Banks (G-SIBs) and precautionary measures. All member countries were directed to set up regulatory frameworks to deal with Domestic Systemically Important Banks (D-SIBs) in their jurisdiction.

India initiated the measures in 2014 based on the data as on March 31, 2013. The Reserve Bank had announced State Bank of India and ICICI Bank as D-SIBs in 2015 and 2016.

Later in 2017, HDFC Bank was also classified as a D-SIB. In the recent review, the three continued to maintain the same status.

Systemically Important Banks (SIBs): Summary

Some banks are classified as important to the financial system of the country due to their large size, wider branch networks, increased functional complexity, lack of substitutability and interconnectedness.

The positive side of SIBs is that they are expected to be ‘Too Big To Fail (TBTF)’. But their failures will cause disastrous consequences to the country’s financial system.

Therefore, there should be a differentiated supervisory treatment in place for SIBs to help reduce the chances of their failure. This includes the need for keeping additional capital requirements by such banks to address possible contingencies in the future.

List of Global Systematically Important Banks (G-SIBs)

The following is the list of international banks, which are identified as global systematically important banks based on the methodology.

BucketBankAdditional Common Equity Tier 1 (CET1) requirement as a percentage of Risk-Weighted Assets (RWAs)
4JP Morgan Chase2.5%
3BNP Paribas
City Group
2Bank of America
Bank of China
China Construction Bank
Deutsche Bank
Goldman Sachs
Industrial and Commercial Bank of China
Mitsubishi UFJ FG
1Agricultural Bank of China
Bank of New York Mellon
Credit Suisse
Groupe BPCE
Groupe Crédit Agricole
ING Bank
Mizuho FG
Morgan Stanley
Royal Bank of Canada
Société Générale
Standard Chartered
State Street
Sumitomo Mitsui FG
Toronto Dominion
Wells Fargo

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1. What is D-SIBs?

D-SIBs stands for Domestic Systematically Important Banks in a country. These are obviously large banks having a wider branch network, customer base and product ranges with a significant contribution and influence on the financial system. Every member country of the Basel Committee on Banking Supervision (BCBS), has to set up a framework to identify SIBs in its jurisdiction and set up regulatory compliance requirements for them

1.What is the Fiancial Stability Board( FSB) ?

The Financial Stability Board ( FSB) is a global organization of countries, which is mainly engaged in monitoring and suggesting recommendations on the global financial system on a regular basis.

2. What is G-SIBs?

G-SIBs are Global Systematically Important Banks having a significant influence on the global financial system . They are identified on the basis of the Basel Committee’s assessment methodology and indicators annually.

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