These three banks in India cannot be drowned, do you have your account in them or not? money moguls

New Delhi. The three banks in India, SBI, ICICI and HDFC, are very important banks for the Indian economy. The government cannot afford to drown these banks. RBI keeps these banks on the D-SIB list and strict regulations have been put in place for them.

In the last week, two banks in America, Silicon Valley Bank and Signature Bank, went under. The third bank i.e. First Republic Bank has been saved by other big banks by giving a help of $30 billion. Although the collapse of US banks will not have any effect on the Indian banking system, this incident of bank collapse one after another has raised people’s concern. Are people worried about what will happen to their money if their bank ever fails? If this happens, the government offers insurance coverage of up to five lakh rupees. But do you know that there are three banks in India that are so big that they cannot drown? Such banks are called D-SIBs. RBI has listed ICICI Bank, SBI and HDFC Bank as D-SIBs.

What are D-SIBs?
In technical terms, Bank of National Systemic Importance. It means those banks that are so important to the country’s economy that the government cannot afford to choke them. Because the country’s economy may be disturbed due to its drowning. So it can create a situation of economic crisis and panic. In English, the phrase too big to fail is used for such banks.

The bank declaration system as D-SIB started after the economic downturn in 2008. Then many big banks in many countries drowned, so the economic crisis situation remained for a long time. Since 2015, RBI publishes the list of D-SIBs every year. Only SBI and ICICI Bank were D-SIBs in 2015 and 2016. HDFC was also included in this list as of 2017.

How are D-SIBs selected?
RBI gives a systematic importance score to all banks in the country based on their performance, their customer base. For a bank to be listed as a D-SIB, its assets must be more than 2 percent of national GDP. D-SIBs are held in five different buckets depending on the importance of the bank. Bucket five means the most important bank, while bucket one means the least important bank. Among the three banks that are D-SIBs, SBI is in Bucket Three while HDFC and ICICI Bank are in Bucket One.

SBI is the most important bank for the Indian economy.

bank run– Bank run means when many customers of a bank start withdrawing their money at once and the bank’s cash deposit is reduced or stopped. The Silicon Valley Bank (SVB) of the United States went under because of this. And due to the panic created by the collapse of SVB, Signature Bank was also the victim of a bank run.

Capital reserve: Capital reserve means keeping additional cash in addition to the cash required for the work of the bank. So that when there is a large demand for cash, it can be met. Think of it this way: Suppose your monthly household budget is Rs 10,000. Usually, your expenses are covered at Rs 10,000. However, on top of that you keep an extra 5,000 thousand for emergencies.

What does it mean to be a D-SIB bank?
RBI keeps a close eye on such banks. Such banks maintain a larger capital buffer compared to the rest of the banks, so even if there is a big emergency or there is a loss, it can be dealt with. RBI has created separate rules for dealing with D-SIBs. Along with the capital buffer, such banks also have to maintain an additional fund called Common Equity Tier 1 (CET1) capital. According to the latest RBI guidelines, SBI is required to hold 0.60 percent of its risk-weighted assets (RWA) as CET1 capital, while banks ICICI and HDFC are required to hold an additional 0.20 percent CET1 capital. . This means that the bank that is in the most important segment will have to hold more additional CET1 capital.

That is, if a bank is a D-SIB, then RBI with its strict regulations makes sure that that bank is ready for the most difficult economic emergency. So if your account is in such a bank, then you can breathe a sigh of relief that your bank will not collapse.

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Tags: Business, hdfc bank, ICICI Bank, SBI Bank