Failure of SBI or ICICI will have serious effect on Indian Economy

Failure of SBI or ICICI will have serious effect on Indian Economy

Classification of ICICI and SBI as D-SIBs means that the banks are too big to fail and their failure would have humongous cascading effect on the nations economy. This desires that a higher level and more effective supervision over these banks be made mandatory

 

Failure of SBI or ICICI will have serious effect on Indian Economy

Subsequent to the categorisation of State Bank of India and ICICI Bank as D-SIBs (Domestic Systemically Important Banks), in September 2015, the RBI yesterday retained the tag for the two banking giants of India in the annual classification practice.

Classification of ICICI and SBI as D-SIBs means that the banks are too big to fail and their failure would have humongous cascading effect on the nations economy.  This desires that a higher level and more effective supervision over these banks be made mandatory.

These banks have been designated such on the basis of a systemic importance score, arrived at after an analysis of the banks’ size as a percentage of annual gross domestic product (GDP). Banks with assets that exceed 2% of GDP have been included in this category of lenders.

Banks are plotted into four different buckets and will be required to have additional Common Equity Tier 1 (CET1) capital requirement ranging from 0.2 per cent to 0.8 per cent of risk weighted assets, depending on the bucket they are plotted into.

Source: The Financial Express

Photo: Gradestack

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