RBI includes HDFC in its list of banks ‘too big to fail’
Banks with assets that exceed 2% of annual Gross Domestic Product are identified as Domestic Systemically Important Banks.
The Reserve Bank of India on Monday included HDFC in the list of banks deemed “too big to fail”, Mint reported. The other banks in this category are the State Bank of India and ICICI Bank. Banks with assets that exceed 2% of annual Gross Domestic Product are categorised as this.
“In addition to the SBI and ICICI Bank, which continue to be identified as Domestic Systemically Important Banks [D-SIBs], the RBI has also identified HDFC Bank as a D-SIB, under the same bucketing structure as last year”, an RBI press release said. The central bank first released a list of D-SIBs in 2015.
An analysis of the banks’ size is used to compile a list of D-SIBs using a “systemic importance score”. The RBI has categorised HDFC and ICICI Bank under Bucket-1 of the D-SIB classification, while the SBI is in Bucket-3. This is because the SBI is larger than HDFC or ICICI Bank.
Meanwhile, HDFC has overtaken ICICI over the last two years in terms of balance sheet size and market capitalisation, BloombergQuint reported.
Banks categorised as D-SIB have to set aside an additional percentage of core capital, known as the D-SIB surcharge. For HDFC, which falls in Bucket-1, this comes to 0.15% of core capital, and will be applicable from April 1, 2018.