RBI RELEASES 2023 LIST OF D-SIBS

01-01-2024

Context

On 28 December, 2023 Reserve Bank of India, released the latest list of Domestic Systemically Important Banks(D-SIBs).

The Basel Committee on Banking Supervision (BCBS) finalized its framework for dealing with D-SIBs in October 2012.
The D-SIB framework focuses on the impact that the distress or failure of banks will have on the domestic economy.
D-SIB framework is based on the assessment conducted by the national authorities, who can evaluate the impact of failure on the local financial system and the local economy.
The RBI had issued the framework for dealing with D-SIB in 2014.
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).

ICICI Bank continued to be in the same bucketing structure as last year whereas State Bank of India and HDFC Bank moved to higher buckets.

BUCKETS	BANKS	Additional Common Equity Tier 1 requirement as a percentage of risk weighted assets (RWAs)
5.	—-----------------	1%
4.	State Bank of India (SBI) (Shift from Bucket 3-Bucket 4)	0.80%
3.	—-------------	0.60%
2.	HDFC BANK (Shift from Bucket 1-Bucket 2)	0.40%
1.	ICICI BANK (no Shift)	0.20%

Criteria for D-SIB: A bank is considered a D-SIB if its failure might seriously disrupt the financial system due to the bank’s size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness. RBI has classified SBI, ICICI Bank and HDFC Bank as D-SIBs.
D-SIB framework: Under the D-SIB framework announced by the Reserve Bank of India (RBI) in 2014, the central bank was required to -

1. Disclose the names of banks designated as D-SIBs, and
2. Place them in appropriate buckets depending upon their Systemic Importance Scores (SISs).

Common Equity Tier 1 (CET1): Depending on the bucket in which a D-SIB is placed, an additional common equity requirement [Common Equity Tier 1 (CET1)] is applicable to it.

1. Tier 1 capital (measured by the capital adequacy ratio (CAR)) is the core measure of a bank's financial strength from a regulator's point of view.
2. It means that these banks have to earmark additional capital and provisions to safeguard their operations.

Foreign banks: In case a foreign bank having branch presence in India is a Global Systemically Important Bank (G-SIB), it has to maintain additional CET1 capital surcharge.
G-SIBSs: Basel - Switzerland-based Financial Stability Board (FSB), an initiative of G20 nations, has identified, in consultation with the Basel Committee on Banking Supervision (BCBS), a list of G-SIBs.

1. There are 30 G-SIBs currently (no Indian bank), including JP Morgan, Citibank, HSBC, Bank of America, Bank of China, Barclays, BNP Paribas, Deutsche Bank, and Goldman Sachs.