The Reserve Bank of India (RBI) has reaffirmed the status of the country's three largest lenders as institutions whose stability is paramount to the national financial system. In its annual review, the central bank stated that State Bank of India (SBI), HDFC Bank, and ICICI Bank will continue to be classified as Domestic Systemically Important Banks (D-SIBs).
What D-SIB Designation Means for Banks
This classification, announced on Tuesday, underscores the critical role these banks play and mandates them to build stronger financial shields. Being a D-SIB means these lenders are required to maintain a higher loss-absorption capacity to safeguard the economy from potential risks should they face distress.
The core requirement translates to holding additional Common Equity Tier 1 (CET1) capital. This extra capital must be maintained over and above the standard Capital Conservation Buffer and is calculated as a specific percentage of their risk-weighted assets (RWAs).
Specific Capital Requirements for Each Bank
The RBI has set differentiated additional capital cushions based on each bank's systemic importance score. State Bank of India (SBI) must maintain the highest extra cushion at 0.80% of its RWAs. HDFC Bank is required to hold an additional 0.40%, while ICICI Bank must keep an extra 0.20%.
This framework ensures that the larger a bank's role in the system, the greater its responsibility to remain resilient. The mandatory capital helps create a buffer that can be used in times of financial stress without requiring a taxpayer-funded bailout.
A Long-Standing Framework for Financial Stability
The current list is published under the RBI's Framework for dealing with Domestic Systemically Important Banks (D-SIBs), which was first introduced on July 22, 2014, and received an update as recently as December 28, 2023. The central bank assesses and announces the D-SIBs annually, placing them in different buckets according to their Systemic Importance Scores (SIS).
The history of this designation shows these banks' enduring significance. SBI and ICICI Bank were first identified as D-SIBs in 2015 and 2016, respectively. HDFC Bank joined this crucial list in 2017 and has been a fixture alongside the other two ever since.
This consistent classification highlights the entrenched position of these three banking giants within India's economic architecture. Their continued designation signals the RBI's unwavering focus on pre-emptive risk management and systemic stability in the dynamic Indian financial landscape.
