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

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 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


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
Chinese tourist charged with manslaughter over fatal botched boob job in Australia
Shao had administered an incorrect dose of anaesthetic while performing the procedure, prosecutors alleged in court. It's understood Ms Shao met Ms Huang through mutual friends and Ms Huang agreed she could perform the procedure.

05 September 2017
Putin Tells US To Think Twice About Sending Weapons To Ukraine
According to the Russian leader, the deployment of United Nations forces tasked to ensure the OSCE mission's security will help solve the problem in southeastern Ukraine.

05 September 2017
Lil Wayne was taken to hospital after suffering seizures
Lil Wayne is also the Chief Executive Officer of his own label imprint, Young Money Entertainment which he founded in 2005. Rapper Lil Wayne is reportedly out of the hospital and taking some time off after suffering multiple seizures.

05 September 2017
OPP officer struck, dragged by vehicle with Quebec license plate
Members of the collision reconstruction unit and forensic identification unit were on scene conducting an investigation. Update: The suspect vehicle has been located by Peel Regional police in the area of Trailwood Dr & Hurontario St.

05 September 2017
Prince Harry says William and Kate's third baby news is "fantastic"
The birth will relegate Prince Harry - who had a scheduled Manchester visit on Monday - down to sixth in line to the throne. She was also hospitalized with the condition while pregnant with Princess Charlotte in 2015.

05 September 2017
Simeone signs two-year Atleti extension
Atletico Madrid manager, Diego Simeone , has signed a new three year deal at the club. Under Simeone, Atletico captured the 2014 La Liga title, its first title since 1996.

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
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
AP Defends Itself From EPA Attacks After Harvey
More than a dozen Superfund sites are in the Houston metro area, which has always been a center of the US petrochemical industry. Among the Superfund sites completely flooded are the San Jacinto River Waste Pits, the site of a 1960s paper mill.