RBI's latest D-SIBs list confirms SBI, ICICI, and HDFC as vital too-big-to-fail banks in 2023

In banking sector, three major players, State Bank of India (SBI), ICICI Bank, and HDFC Bank, have retained their status as Domestic Systemically Important Banks (D-SIBs) in the eyes of the Reserve Bank of India (RBI) for the year 2023. But what does being a D-SIB entail?

To put it simply, D-SIBs are like pillars in the financial system. If one of these banks were to falter or fail, it could send ripples through the entire financial landscape, potentially causing instability. Hence, they receive extra attention and supervision from the RBI because their stability is crucial for the overall health of the economy.

This vigilance stems from the fallout of the 2008 global financial crisis, prompting central banks worldwide to closely monitor institutions deemed 'too big to fail.'

While ICICI Bank maintained its position from the previous assessment, both SBI and HDFC Bank were moved into higher D-SIB categories by the RBI. This change will require SBI and HDFC Bank to bolster their reserves to ensure financial stability by April 2025.

This bolstering includes maintaining additional Common Equity Tier 1 (CET1), a measure of a bank's core equity capital, beyond the regular capital conservation buffer. SBI, for instance, will need to maintain an additional 0.80 percent CET1 in proportion to its risk-weighted assets, while ICICI Bank and HDFC Bank have to maintain 0.20 percent and 0.40 percent extra, respectively.

However, the increased surcharge for SBI and HDFC Bank will only become effective from April 1, 2025. Until then, SBI will have a 0.60 percent surcharge, and HDFC Bank will maintain a 0.20 percent surcharge.

The RBI introduced the D-SIB framework in 2014 to ensure better oversight of systematically important banks. The recent update, based on data up to March 31, 2023, reflects HDFC Bank's elevated systemic importance following its merger with erstwhile HDFC Limited on July 1, 2023.

This meticulous categorization and additional requirements aim to fortify these banks against potential shocks and contribute to a more resilient financial system, shielding the economy from adverse consequences in the event of a banking crisis.

Also Watch: RBI dismisses IMF assertion of excessive Forex intervention