‘Domestic Systemically Important Banks (D-SIBs)’- To The Point | Drishti IAS

Summary

This video discusses Domestic Systemically Important Banks (D-SIBs) in India, focusing on their critical role in the economy. Key banks like State Bank of India (SBI), ICICI Bank, and HDFC Bank are evaluated using the RBI's criteria based on their size, complexity, and interconnectedness. The Reserve Bank of India identifies these banks to ensure financial stability, given their impact on the domestic economy. The video explores the criteria, risk management strategies, and importance of maintaining the stability of these banks, offering valuable insights into the country's banking structure and economic framework.

Takeaways

• 😀 Banks like State Bank of India (SBI), ICICI Bank, and HDFC Bank are considered systemically important in India.
• 😀 Systemically important banks play a crucial role in maintaining the stability of the domestic economy.
• 😀 Banks are classified based on criteria such as size, operational complexity, and interconnectedness within the economy.
• 😀 A bank's total assets being more than 2% of India's GDP is a key factor in its classification as systemically important.
• 😀 The Reserve Bank of India (RBI) monitors and classifies banks based on their risk management and economic impact.
• 😀 These banks are so important that their failure could disrupt the entire financial system and economy.
• 😀 RBI introduced a framework in 2014 to assess the importance of banks using factors like equity and risk management.
• 😀 Systemically important banks must manage risks effectively through equity and asset management practices.
• 😀 As of March 31, 2019, no new banks were added to the list of systemically important banks.
• 😀 The classification of banks as systemically important helps the RBI maintain financial stability in the country.
• 😀 The RBI's ongoing supervision ensures that the operations of these significant banks do not jeopardize the economy.

Q & A

What is the topic of today's program?

The topic of today's program is Domestic Systemically Important Banks (D-SIBs).

Which banks are mentioned as part of the domestic important banks in India?

The Indian State Bank (SBI), ICICI Bank, and HDFC Bank are mentioned as part of the domestic systemically important banks in India.

What makes a bank systemically important in the context of D-SIBs?

A bank is considered systemically important if it has significant size, operational complexity, interconnections with other financial institutions, and if it is crucial to the stability of the domestic economy.

What is the criterion for a bank to be classified as a D-SIB?

Banks with total assets exceeding 2% of the country's GDP are generally considered for classification as domestic systemically important banks (D-SIBs).

When did the RBI initiate the process of categorizing D-SIBs?

The Reserve Bank of India (RBI) initiated the process of categorizing domestic systemically important banks in 2014.

What factors does the RBI consider when evaluating D-SIBs?

The RBI evaluates D-SIBs based on their substitutability, complexity, operational activities, and the interconnections they have within the financial system.

What is the role of additional equity in the context of D-SIBs?

D-SIBs are required to maintain additional equity ranging from 0.20% to 0.80%, depending on their systemic importance, to manage risks effectively.

How does the RBI assess the stability of D-SIBs?

The RBI uses a framework that includes evaluating a bank's Common Equity Tier 1 (CET1) capital and its ability to handle risks from other assets.

What is the importance of Common Equity in managing risks for D-SIBs?

Common equity shares help manage risks by providing a capital buffer to cover potential losses, ensuring that the bank remains stable during financial stress.

What was the most recent update regarding D-SIBs, as mentioned in the transcript?

The most recent update regarding D-SIBs was as of March 31, 2019, which outlines the current criteria and assessments for domestic systemically important banks.