Domestic Systemically Important Banks (D-SIBs) for 2023

Domestic Systemically Important Banks (D-SIBs) for 2023

News: Recently, the Reserve Bank of India (RBI) issued the list of Domestic Systemically Important Banks (D-SIBs).

Background:
• The RBI has retained the State Bank of India, HDFC Bank and ICICI Bank as Domestic Systemically Important Banks (D-SIBs).

What are the Domestic Systemically Important Banks (D-SIBs)?
• Domestic Systemically Important Banks (D-SIBs) are financial institutions that are large enough where they cannot be allowed to fail. These banks are considered as “too big to fail” due to their size, cross-jurisdictional activities, complexity, lack of substitutability, and
interconnectedness.
• The disorderly failure of these banks has the potential to cause significant disruption to the essential services they provide to the banking system, and in turn, to the overall economic activity.

Why was it felt important to create SIBs?
• During the 2008 crisis, problems faced by certain large and highly interconnected financial institutions hampered the orderly functioning of the global financial system.
• Government intervention was considered necessary to ensure financial stability in many jurisdictions.
• SIBs are perceived as banks that are ‘Too Big To Fail (TBTF)’, due to which these banks enjoy certain advantages in the funding markets.
• While the Basel-III Norms prescribe a capital adequacy ratio (CAR) — the bank’s ratio of capital to risk — of 8 per cent, the RBI has been more cautious and mandated a CAR of 9 per cent for scheduled commercial banks and 12 per cent for public sector banks.