The Reserve Bank of India (RBI) has issued a list of Domestic Systemically Important Banks (D-SIBs). The State Bank of India, HDFC Bank, and ICICI Bank continue to be included in the list.
The Reserve Bank of India (RBI) released the list of Domestic Systemically Important Banks (D-SIBs) on November 13, 2024. The State Bank of India (SBI), ICICI Bank, and HDFC Bank continue to remain on the list. RBI issued the first D-SIBs list in 2015, one year after preparing the Framework. On July 22, 2014, it issued the Framework for dealing with Domestic Systemically Important Banks (D-SIBs) which was updated last year on December 28, 2023.
As per RBI notification, “The D-SIB framework requires the Reserve Bank to disclose the names of banks designated as D-SIBs starting from 2015 and place these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs)”.
The three D-SIBs in the 2024 list will follow the same bucketing structure as in the 2023 list.
D-SIBs are large banks with a vast presence and penetration in the country’s financial system. If they fail, they may pose a systemic risk to the financial system. In order to safeguard the financial system from facing any exigency, RBI designates such institutions as D-SIBs.
Failure of such banks would mean a significant financial disturbance and panic among the masses. So, once designated D-SIBs, these banks are required to follow the regulations set for them and limit the risk of disruptions.
These D-SIBs are classified into five buckets based on their systemic importance, where bucket 5 is of utmost importance for the national economy. These banks are required to maintain additional common equity as disclosed in the D-SIBs list.
In the list released today, ICICI Bank is listed in Bucket 1, HDFC Bank in Bucket 2, and SBI is in Bucket 4. There has been no change in the bucket list from the last issued list in December 2023.
RBI selects D-SIBs based on SIS and then places them on the bucket list based on their systemic importance. They have to maintain the additional Common Equity Tier 1 capital requirement ranging from 0.20 per cent to 1.00 per cent based on their risk-weighted assets and the bucket they are placed in. The identification and review of D-SIBs is a regular exercise and is conducted at least once every three years.
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To maintain stability in the financial system, banks are required to maintain a certain amount of common equity. In banking terms, they need to fulfill the stipulated Common Equity Tier 1 (CET1) requirement, where they need to maintain a share of risk-weighted assets as tier-I equity. However, D-SIBs are required to maintain the additional CET1.
As per the latest list, the SBI needs to maintain an additional CET1 at 0.80 per cent of its risk-weighted assets, HDFC at 0.40 per cent, and ICICI at 0.20 per cent.
“The higher D-SIB surcharge for SBI and HDFC Bank will be applicable from April 01, 2025. Hence, up to March 31, 2025, the D-SIB surcharge applicable to SBI and HDFC Bank will be 0.60 per cent and 0.20 per cent, respectively”, reads the notification.
SBI was the first bank that was included in the D-SIBs list in 2015, followed by ICICI Bank which was included in 2016, and HDFC Bank in 2017. The latest list has been issued based on the banks’ data on March 31, 2024.