Domestic Systemically Important Banks (D-SIBs) – Update (January, 2023)

January 3, 2023

The Reserve Bank of India (RBI) has named the top three lenders in India – State Bank of India (SBI), ICICI Bank, and HDFC Bank – as Domestic Systemically Important Banks (D-SIBs), or banks that are too big to fail. In other words, these banks are interconnected entities whose failure could potentially impact the entire financial system and cause instability. As a result, they are subject to closer supervision and regulation by the RBI.

What is a D-SIB?

A D-SIB is a bank that is considered to be so important to the financial system that its failure could cause significant disruption. As a result, these banks are required to maintain higher capital buffers to protect against potential losses and ensure their stability. In India, the RBI has established a framework for dealing with D-SIBs, which requires the central bank to disclose the names of designated banks starting from 2015 and place them in appropriate buckets based on their systemic importance.

How are D-SIBs regulated?

In addition to the usual capital conservation buffer, D-SIBs in India are required to maintain additional Common Equity Tier 1 (CET1) capital. According to the RBI’s latest press release, SBI must maintain an additional 0.60% CET1 as a percentage of its risk-weighted assets, while ICICI Bank and HDFC Bank must maintain an additional 0.20% each.

Foreign banks with a branch presence in India that are designated as Global Systemically Important Banks (G-SIBs) must also maintain additional CET1 capital surcharges in India as required by the rules for G-SIBs.

Why were only three banks designated as D-SIBs?

The RBI announced SBI and ICICI Bank as D-SIBs in 2015 and 2016, respectively. Based on data from banks as of March 31, 2017, HDFC Bank was also classified as a D-SIB, along with SBI and ICICI Bank. The current update is based on data from banks as of March 31, 2022.
In 2015, global rating agency Moody’s questioned the RBI’s decision to initially designate only two banks as D-SIBs, stating that the central bank’s approach was “less stringent” than in other jurisdictions and was therefore credit negative.
The RBI’s designation of SBI, ICICI Bank, and HDFC Bank as D-SIBs highlights the importance of these banks to the financial system in India. As a result, they are subject to additional regulatory requirements and closer supervision to ensure their stability and protect against potential losses.

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