HDFC Bank in Reserve Bank's too-big-to-fail list of lenders along with SBI and ICICI Bank

Mumbai: The Reserve Bank of India (RBI) on Monday included HDFC Bank in the list of too big to fail lenders, referred to as D-SIB or domestic systemically important bank. India’s largest lender, State Bank of India (SBI) and private sector major ICICI Bank were classified as D-SIBs in 2015. With the inclusion of HDFC Bank in the list, there will now be three ’too big to fail’ financial entities in the country. SIBs are subjected to higher levels of supervision so as to prevent disruption in financial services in the event of any failure. [caption id=“attachment_3850563” align=“alignleft” width=“380”]  Reuters[/caption] “The additional Common Equity Tier 1 (CET1) requirement for D-SIBs has already been phased-in from April 1, 2016 and will become fully effective from April 1, 2019,” the Reserve Bank said in a statement. The additional CET1 or core capital requirement will be in addition to the capital conservation buffer, it added. The RBI categorises SIBs under five buckets depending upon their Systemic Importance Scores (SISs). “Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it. 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,” the RBI said in the statement. Accordingly, ICICI Bank and HDFC Bank are in the first bucket. The banks need an additional tier I capital of 0.1% of loans for the current financial year. From 1 April 2018, the requirement will be an additional 0.15 percent. SBI, meanwhile, is in the third bucket. It requires requires additional tier I capital of 0.3 percent this year and 0.45 percent for the next financial year. The RBI had issued the framework for dealing with D-SIBs in July 2014. As per the framework, RBI has to disclose the names of banks designated as D-SIBs every year in August starting from 2015 and place these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs). SIBs are seen as ’too big to fail’ (TBTF), creating expectation of government support for them in times of financial distress. These banks also enjoy certain advantages in funding markets. On the downside, according to some experts, expectations of government support amplifies risk-taking, reduces market discipline, creates competitive distortions and increases probability of distress in future. (With inputs from PTI)