HDFC Bank joins ‘too­big­to­fail’ list of lenders

Private sector lender HDFC Bank Ltd has been declared a domestic-systemically important bank (D-SIB), the Reserve Bank of India stated. With this, the bank has joined SBI and ICICI Bank Ltd, which have been tagged as D-SIBs, or “too-big-to-fail” for the third consecutive year.

Such classification means the collapse of these lenders could have a cascading impact on the entire financial system and the economy. Considering their status, D-SIBs are mandated to maintain a progressively higher share of risk-weighted assets as tier-I equity, which is a measure of the bank’s core capital.

In case of HDFC Bank, the additional capital surcharge will be applicable from 1 April 2018.
The additional capital requirement for D-SIBs has been in phased-in since April 2016 and will be fully effective from April 2019, according to the RBI framework.

RBI declares a list of D-SIBs every year. The first list was released in 2015, in which SBI and ICICI Bank were included. Both banks have been designated on the basis of a systemic importance score, arrived at after an analysis of the banks’ size as a percentage of annual gross domestic product. Banks with assets that exceed 2% of GDP will be considered part of this class of lenders.

No comments: