Economy

RBI includes HDFC Bank in 'too big to fail' list

RBI today included HDFC Bank in the list of "too big to fail" lenders, referred to as D-SIB or domestic systemically important bank.

RBI categorises such banks as Domestic Systemically Important Banks (D-SIBs). 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. The other banks on the list are the two largest lenders - State Bank of India (SBI) and ICICI Bank. RBI, in its framework for dealing with D-SIBs, describes them as "banks [that] assume systemic importance due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness".

DSIB banks are required to set aside additional common equity capital in a phased manner.

How does RBI define "too big to fail" banks?

Banks which act as biggest lenders, take part in all types of financial activities like home loans, auto loans, educational loans, etc. which brings development in both people's life and nation are considered as D-SIB.

Based on the methodology provided in the D-SIB framework and data collected from banks as on 31 March 2015 and 31 March 2016, respectively, the Reserve Bank had announced State Bank of India and ICICI Bank Ltd.as D-SIBs on 31 August 2015 and 25 August 2016, respectively. "The disorderly failure of these banks has the potential to cause significant disruption to the essential services they provide to the banking system, and in turn, to the overall economic activity", the RBI stated. As such large banks have the potential to disrupt the banking system, government intervention was considered necessary to ensure financial stability. The banking regulator prescribes higher capital requirements - in terms of additional Common Equity Tier 1 (CET 1) capital - for such entities.

The RBI says that SIBs are perceived as banks that are "Too Big To Fail" (TBTF). These banks are subject to more rigorous regulation and capital requirement. The perception alo helps these banks in the funding markets and bring advantage for them.

Apart from protection from the RBI in the times of distress, the D-SIBs will be subjected to higher levels of supervision so as to prevent disruption of financial services in the event of any failure. However, the RBI notes, perceived expectation of government support amplifies risk-taking, reduces market discipline, creates competitive distortions, and increases the probability of distress in the future.



Like this

loading...
loading...

Latest


06 September 2017
Sweden will Deport 106-year-old Afghan Woman
Her family has appealed against the rejection, the first of the three she is allowed, in a process that can take a long time. The woman, carried by her son and grandson, endured the risky trip to Sweden , crossing mountains, deserts and forests.

05 September 2017
Dallas Cowboys vs. New York Giants - 9/10/17 NFL Pick, Odds, and Prediction
At the time of writing, the Dallas Cowboys are still unsure of Ezekiel Elliott's playing status heading into the regular season. The NFL has filed to get the case thrown out as Henderson has yet to make an arbitration ruling.

05 September 2017
Atlanta Falcons Release DT Ra'Shede Hageman
He was listed as a backup before Saturday's designation prevented him from playing in games or practicing. He then allegedly stole her wallet, cell phone, and ID before pushing her down in the parking deck.

05 September 2017
Grey's Anatomy season 14 spoilers: Don't expect more Leah Murphy
Since her arrival in season 9, Leah Murphy has not only become friends and she quickly became a controversial character ... But even though the character returned to happy viewers, her presence apparently wasn't deemed necessary to stick around.

05 September 2017
Russia's Putin calls for talks with North Korea
Weapons experts say it's nearly impossible to verify if the warhead and missile could be successfully paired unless North Korea were to fire a nuclear-tipped ICBM.

05 September 2017
Colombian Government, ELN Agree on Ceasefire
The ELN, whose founders five decades ago included radical Roman Catholic priests, is believed to have about 1,500 active fighters. Under the cease-fire, the rebels agree to suspend attacks on infrastructure, kidnappings and recruitment of minors.

05 September 2017
Opposition lines up Tiruchy rally against NEET in Tamil Nadu
The Central Government kept Tamil Nadu Government's ordinance exempting government colleges from NEET on hold for a year. She committed suicide in her home a week after Centre announced that Tamil Nadu can not be exempted from NEET.

05 September 2017
Most Active Volume Stock: Hewlett Packard Enterprise Company (HPE)
Owens Corning is engaged in the business of composite and building materials systems, delivering a range of services and products. Equities analysts expect that Hewlett Packard Enterprise will post $1.45 earnings per share for the current fiscal year.

05 September 2017
Facebook reveals how WhatsApp will make money
Facebook acquired WhatsApp for $19 billion in 2014 and has yet to focus on turning the popular chat app into a money maker. The social network had started showing ads inside its Messenger app in July to further monetize the chat service.

05 September 2017
Is this Kendall Jenner's new man?
He's into Kendall and making a big move. "He definitely wants to be the only guy in her life", the insider added. Even if Jenner is seeing Griffin on the side, she and Rocky have been steadily getting more serious.