Explanation:

A few banks assume systemic importance due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness. The disorderly failure of these banks has the propensity to cause significant disruption to the essential services provided by the banking system, and in turn, to the overall economic activity. These banks are considered Systemically Important Banks (SIBs) as their continued functioning is critical for the uninterrupted availability of essential banking services to the real economy. After adding the State Bank of India and private lender ICICI, the Reserve Bank of India has listed HDFC to systemically important banks list.

Statement 1: Since 2015, RBI has been identifying banks whose failure would impact the whole financial system. These banks are subject to more rigorous regulation and capital requirement. This perception of TBTF creates an expectation of government support for these banks at the time of distress. Due to this perception, these banks enjoy certain advantages in the funding markets.

The indicators the RBI uses for identifying Domestic-SIBs are: size, interconnectedness, substitutability and complexity.