What is D-SIB ?
What is D-SIB ?
- D-SIB means that the bank is too big to fail.
- According to the RBI, some banks become systemically important due to their size, cross-jurisdictional activities, complexity and lack of substitute and interconnection.
- Banks whose assets exceed 2% of GDP are considered part of this group.
- The RBI stated that should such a bank fail, there would be significant disruption to the essential services they provide to the banking system and the overall economy.
- The too-big-to-fail tag also indicates that in case of distress, the government is expected to support these banks.
- Due to this perception, these banks enjoy certain advantages in funding.
- It also means that these banks have a different set of policy measures regarding systemic risks and moral hazard issues.
- As per the framework, from 2015, every August, the central bank has to disclose names of banks designated as D-SIB.
- It classifies the banks under five buckets depending on order of importance. ICICI Bank and HDFC Bank are in bucket one while SBI falls in bucket three.
- Based on the bucket in which a D-SIB is, an additional common equity requirement applies.
- Banks in bucket one need to maintain a 0.15% incremental tier-I capital from April 2018.
- Banks in bucket three have to maintain an additional 0.45%.
- With bucket three being higher than bucket one, SBI has a higher additional requirement than ICICI Bank and HDFC Bank.
- All the banks under D-SIB are required to maintain higher share of risk-weighted assets as tier-I equity.
- According to the central bank, the additional capital requirement for these banks started in April 2016 in a phased manner and will be fully effective from April 2019.
- The concept of D-SIB emerged after the global financial crisis.
- Whether your bank is in the D-SIB list or not, your fixed deposits are insured up to Rs1 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC).
- This means, in case of default, DICGC will pay you up to Rs.1 lakh.
- Also, so far, there hasn't been an incident where the government has not rescued depositors during a crisis in commercial banks.
- The government has also come to the rescue of large co-operative banks.
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