Consider the following statements regarding Domestic Systemically Important Banks DSIBs 1 These are ...........

Economic Affairs Money Supply and Monetary Policy

Consider the following statements regarding Domestic Systemically Important Banks (DSIBs):

1. These are systemically important banks which are important because of their size and are involved in cross-jurisdictional

activities.

2. The banks are recognized as D-SIBs by the Ministry of Finance.

3. As of now, only Public Sector Banks have been identified under the category of D-SIBs.

Which of the statements given above is/are correct?

1 only

2 and 3 only

3 only

1, 2 and 3

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Explanation:

Domestic Systemically Important Bank (D-SIB) means that the bank is too big to fail. These are recognized by the Reserve Bank of India. According to the RBI, some banks become systemically important due to their size, cross-jurisdictional activities, complexity and lack of substitute and interconnection. Banks whose assets exceed 2% of GDP are considered part of this group. Hence
statement 1 is correct and statement 2 is not correct.
• The RBI stated that should such a bank fail, there would be significant disruption to the essential services they provide to the banking system and the overall economy. The too-big-to-fail tag also indicates that in case of distress, the government is expected to support these banks. Due to this perception, these banks enjoy certain advantages in funding. It also means that these banks have a different set of policy measures regarding systemic risks and moral hazard issues.
• As per the framework, from 2015, every August, the central bank has to disclose the names of banks designated as D-SIB. It classifies the banks under five buckets depending on the order of importance. Based on the bucket in which a D-SIB is, an additional common equity requirement applies.
• As of now, RBI has recognized, HDFC Bank (Private sector), ICICI (Private Sector) and SBI (Public Sector) under the category of D-SIBs. Hence statement 3 is not correct.