September 06, 2017

HDFC Bank In List Of "Too Big To Fail" Lenders


On September 2, Reserve Bank of India (RBI) has included HDFC Bank in the list of 'too big to fail' lenders. HDFC Bank joins India's largest lender SBI and private sector major ICICI Bank who joined this list back 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.

In this regard, RBI stated that "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." RBI further added that the additional CET1 or core capital requirement will be in addition to the capital conservation buffer.

RBI had issued the framework for dealing with D-SIBs in July 2014, according to which 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.

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