Vikrant Shekhawat : Nov 13, 2024, 02:20 PM
Reserve Bank Of India: The Reserve Bank of India (RBI) has once again designated three major banks—State Bank of India (SBI), HDFC Bank, and ICICI Bank—as Domestic Systemically Important Banks (D-SIBs). The central bank's announcement means that these three banks will remain important to India's financial structure even in 2024. The decision to keep these banks in D-SIB reflects their financial strength and their contribution to the stability of the country's banking system. To be included in this list of D-SIBs, it is mandatory for banks to maintain additional capital buffers, so that these banks can prove helpful in keeping the country's economy safe during any financial crisis.Categories of SBI, HDFC and ICICI BankRBI's D-SIB list places SBI, HDFC Bank and ICICI Bank in different buckets, classified on the basis of their systemic importance.State Bank of India (SBI): SBI, the country's largest public sector bank, has been placed in Bucket 4. Accordingly, SBI will have to maintain more capital than other banks. Under this bucket, SBI will be required to maintain an additional Common Equity Tier 1 (CET1) buffer of 0.80%.HDFC Bank: HDFC Bank, the leading private sector lender, has been included in Bucket 2. For this, HDFC Bank will have to maintain an additional CET1 of 0.40%.ICICI Bank: The second largest private sector lender, ICICI Bank, has been classified in Bucket 1. For this, this bank will have to maintain an additional CET1 buffer of 0.20%.Effect and timeline of D-SIB surchargeThe Reserve Bank of India has clarified that the new rate of higher D-SIB surcharge on SBI and HDFC Bank will be applicable from April 1, 2025. Meanwhile, a relatively lower D-SIB surcharge will continue to be applicable on both these banks till March 31, 2025. Under this, SBI has to maintain a surcharge of 0.60% and HDFC Bank 0.20%.D-SIB framework and historical backgroundThe D-SIB framework was introduced by the RBI in 2014 with the aim of identifying banks that are highly important for the financial stability of the country. Under this, SBI and ICICI Bank were first given the D-SIB tag in 2015 and 2016, and HDFC Bank was also included in this list in 2017. Since then, these three banks have remained in this list continuously and are making significant contributions to the Indian financial system.Importance of D-SIB listGetting the D-SIB tag means that these banks are so important for financial stability that a crisis on them can have a direct impact on the country's economy. Given this situation, they need to maintain additional capital so that the impact of any kind of financial risk on the banking system can be reduced.These banks listed as D-SIBs are provided with a special safety net. The additional capital buffer of D-SIB banks not only strengthens their financial stability but also maintains customer confidence. The entire banking sector benefits from this and D-SIB banks have to follow special surcharges and stricter norms than other banks.ConclusionThis decision of the Reserve Bank of India is an important step towards strengthening the Indian banking system. SBI, HDFC and ICICI Bank being on the D-SIB list shows how important these banks are in the Indian economy. With these banks having high capital buffers, they will be able to withstand any financial crisis and provide stability to the Indian financial system.