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After SBI And ICICI, HDFC Bank Gets 'Too Big To Fail' Status: 5 Things To Know

The RBI had earlier announced SBI and ICICI Bank as domestic systemically important banks.

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After SBI And ICICI, HDFC Bank Gets 'Too Big To Fail' Status: 5 Things To Know

Extra capital requirement for HDFC Bank will be applicable beginning April 1, 2018, RBI said.


Highlights

  1. Now there are three 'too big to fail' financial entities in the country
  2. These are subjected to higher levels of supervision
  3. RBI had issued the framework in 2014
The Reserve Bank of India (RBI) on Monday added HDFC Bank to a list of "domestic systemically important banks", or the equivalent of "too big to fail". HDFC Bank, the second-biggest Indian lender by assets, joins top lender SBI and ICICI Bank in the list referred to as D-SIB or domestic systemically important bank.  Being named systemically important imposes additional capital requirements on the lenders. The extra capital requirement for HDFC Bank will be applicable beginning April 1, 2018, RBI said. 

Here are 5 things to know about 'Too Big To Fail' Status

1) The RBI had earlier announced SBI and ICICI Bank as domestic systemically important banks. With the inclusion of HDFC Bank in the list, there are now three 'too big to fail' financial entities in the country.

2) Systemically important banks are subjected to higher levels of supervision so as to prevent disruption in financial services in the event of any failure.

3) The Reserve Bank had issued the framework for dealing with Domestic Systemically Important Banks (D-SIBs) in 2014.  The D-SIB Framework requires the Reserve Bank to disclose the names of banks designated as D-SIBs and place these banks in appropriate buckets depending upon their systemic importance scores. 

4) Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it. 

5) In case a foreign bank having branch presence in India is a global systemically important bank (G-SIB), it has to maintain additional CET1 capital surcharge in India as applicable to it as a G-SIB, proportionate to its risk weighted assets (RWAs) in India, says an RBI statement. (With agency inputs)
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Source: RBI


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