D-SIB: RBI has recently released the list of banks whose sinking cannot be taken. Two private sector banks are also included in this list.
D-SIB: The central bank RBI last week released the list of banks whose risk of sinking cannot be taken. Two private sector banks are also included in this list. According to the press release issued on the date of July 4, SBI, ICICI Bank and HDFC Bank are included in this list. According to the list of RBI, these three banks are so important that if they sink then the country’s economy can get a big blow.
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What is D-SIB Framework
- Under the D-SBI framework, since 2015, RBI identifies some banks and ranks them in a category on the basis of their Systemic Importance Scores (SIS) i.e. importance. In this category, those banks are kept which are so big that they cannot bear the risk of failure i.e. Too Big to Fail. This means that if they come in any crisis, the government can also help to handle them.
- Banks included in this category have to keep some part of their Risk Weighted Assets (RWAs) as Additional Common Equity Tier-1 (CET-1). CET-1 That portion of Tier-1 capital that is required to be held by a bank or any financial institution as equity. Tier-1 capital is the main capital of a bank or financial institution which is kept in the form of reserves and through it the business activities of the customers of the banks are funded. It shows their health. It includes Common Stocks, Disclosed Reserves and some other assets.
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- In this category the banks are kept in buckets and the additional capital requirement (CET-1) is different for all the buckets. This risk is 1 per cent of the weighted assets in the fifth bucket, 0.80 per cent in the fourth bucket, 0.60 per cent in the third, 0.40 per cent in the second and 0.20 per cent in the first bucket.
- ICICI Bank and HDFC Bank require additional CET-1 of 0.20 per cent of their risk-weighted assets in the first bucket, while 0.60 per cent for SBI as it is in the third bucket.
SBI was first involved
SBI was the first to be included in this category. SBI had joined this category in the year 2015. After this, ICICI Bank was included in the following year 2016 and then HDFC Bank was also identified as D-SIB as per the data available from the bank till 31st March 2017.
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