India's Financial Stability Depends On Only These 3 Banks; They Are...

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New Delhi: The Reserve Bank of India (RBI) has named State Bank of India (SBI), HDFC Bank, and ICICI Bank as the country’s most crucial financial players, officially recognizing them as Domestic Systemically Important Banks (D-SIBs).

Once again, in 2024, State Bank of India, HDFC Bank, and ICICI Bank have been recognized as Domestic Systemically Important Banks (D-SIBs) due to their size and critical role in India’s economy. These banks are considered so essential that their failure would seriously disrupt the nation’s financial stability. To safeguard against this, the government and regulators prioritise their stability, implementing protections to ensure these major banks remain secure.

The D-SIB status for these banks is based on the most recent data up to March 31, 2024. This designation means that these banks must hold extra capital, known as Common Equity Tier 1 (CET1) to help absorb potential losses and better manage risks. The exact amount of additional CET1 capital required depends on each bank’s specific ranking within the D-SIB framework.

The Reserve Bank of India (RBI) introduced the concept of Domestic Systemically Important Banks (D-SIBs) in 2014 as part of a global initiative to enhance financial stability. The RBI began identifying these key banks in 2015, starting with State Bank of India. ICICI Bank was added in 2016, followed by HDFC Bank in 2017. The D-SIB classification aims to ensure that these banks hold enough capital to handle financial shocks, subjecting them to stricter regulatory standards for stability.

Here’s a breakdown of the CET1 capital requirements for each of the three D-SIBs:

- State Bank of India: Placed in Bucket 4, requiring an additional 0.80% CET1 capital.

- HDFC Bank: Remains in Bucket 2, with an additional 0.40% CET1 capital requirement.

- ICICI Bank: Positioned in Bucket 1, needing an additional 0.20% CET1 capital.

The increased CET1 capital requirements are aimed at ensuring these banks can handle financial stress without jeopardising the stability of the broader economy. These new capital rules will be enforced starting April 1, 2025.