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.