RBI Includes HDFC Bank In 'too big to fail' List Along With SBI, ICICI

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RBI included HDFC Bank in the list of 'too big to fail' lenders, referred to as D-SIB or domestic systemically important bank.

India's largest lender SBI and private sector major ICICI Bank were classified as D-SIBs in 2015. With the inclusion of HDFC Bank in the list, there will now be three 'too big to fail' financial entities in the country.

SIBs and D-SIBs

SIBs are subjected to higher levels of supervision so as to prevent disruption of financial services in the event of any failure. "The additional Common Equity Tier 1 (CET1) requirement for D-SIBs has already been phased-in from April 1, 2016, and will become fully effective from April 1, 2019," the Reserve Bank said in a statement. The additional CET1 or core capital requirement will be in addition to the capital conservation buffer, it added.

SISs

RBI had issued the framework for dealing with D-SIBs in July 2014. According to the framework, RBI has to disclose the names of banks designated as D-SIBs every year in August starting from 2015 and place these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs).

TBTF

SIBs are seen as 'too big to fail (TBTF)', creating an expectation of government. On the downside, according to some experts, expectations of government support amplifies risk-taking, reduces market discipline, creates competitive distortions and increases the probability of distress in future. Ten Banks That Have Slashed Interest Rates On Savings Bank Accounts

Read more about: rbi, icici, sbi
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