Published On: Mon, Sep 4th, 2017

RBI Lists HDFC As “Too Big To Fail”

HDFC Bank gets the status of being “too big to fail” by the Reserve Bank of India (RBI) and joins top lenders State Bank of India (SBI) and ICICI Bank. Below are some basic things to know about the terminology title:

RBI announces Monday HDFC as domestic systemically important banks. So with this there are three big financial entities in the country that is “too big to fail.”

Such financial entities are subjected to higher levels of supervision so that the services to customers are not disrupted in the event of failure.

The framework of Domestic Systemically Important Banks (D-SIBs) started in 2014 and requires the central bank to list such banks that could be accommodated in the idea and place those in appropriate buckets, but though it depends on their systemic importance scores (SISs).

RBI Lists HDFC As Too Big To Fail

Apart from this an additional common equity requirement need to be applied too.

The same goes with a different rule for foreign banks having presence in the country. They are termed as a Global systemically Important Bank (G-SIB) and need to maintain additional CET1 capital surcharge as well as a proportionate to their Risk Weighted Assets (RWAs).

Meanwhile, some experts believe the concept could reduce market discipline, increase probability of distress in future, creates competitive distortions and expectations of government support amplifies risk-taking.

About the Author

- Paul Linus is an eminent online journalist who has been writing news, features and editorials on different websites from across the world for about a decade.

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