Domestic Systemically Important Banks (D-SIBs) play a major role in protecting India’s financial stability. The Reserve Bank of India (RBI) identifies these banks based on their size, complexity and importance. These institutions are often described as “Too Big to Fail” (TBTF) because their failure can harm the entire economy.
In 2025, the RBI released its updated list of D-SIBs and reaffirmed the importance of these banks in India’s financial structure.
Why in the News?
- The RBI has released the list of Domestic Systemically Important Banks for 2025. The central bank identified State Bank of India (SBI), HDFC Bank, and ICICI Bank as D-SIBs.
- These banks retained the same bucketing structure as the previous year.
- The RBI termed them as the most systemically important financial institutions in India. They were also recognised in the 2024 list. Their continued presence highlights their large size, wide reach and impact on the domestic economy.
Stay updated with India’s latest economic and banking current affairs to strengthen your preparation with reliable insights.
What Are Domestic Systemically Important Banks (D-SIBs)?
- The RBI introduced the concept of D-SIBs in 2014. This move aligned with global efforts to strengthen financial systems after the 2008 crisis.
- D-SIBs are banks that hold significant importance for the domestic economy. Their operations are large, complex and deeply interconnected with other institutions. If a D-SIB fails, it can disrupt the entire financial ecosystem.
- These banks face additional regulatory requirements. They must maintain higher capital buffers, undergo stress tests and prepare recovery plans. The RBI aims to ensure that these banks remain resilient during financial shocks.
Key features of D-SIBs include:
- Large size and extensive market presence
- High interconnectedness with financial institutions
- Cross-jurisdictional operations
- Lack of viable substitutes
- Systemic importance during economic stress
The RBI began identifying D-SIBs in 2015. SBI was the first bank added. ICICI Bank joined in 2016, and HDFC Bank was included in 2017.
Regulatory Framework for D-SIBs:
The D-SIB framework directs the RBI to:
- Disclose the names of D-SIBs
- Place each bank into a specific bucket based on its Systemic Importance Score (SIS)
- Assign additional Common Equity Tier 1 (CET1) capital requirements
Common Equity Tier 1 (CET 1):
- The CET1 capital is a key measure of a bank’s financial strength.
- It includes core equity capital, which protects banks during crises.
- Therefore, banks in higher buckets must hold more capital to reduce the probability of failure.
These rules ensure that D-SIBs safeguard their operations while protecting the broader financial system.
CET1 Requirements and Buckets for 2025:
The RBI assigns each D-SIB to a specific bucket. Higher buckets require higher CET1 capital. As per the 2025 list:
- SBI is in Bucket 4, with an additional 0.80% CET1 requirement
- HDFC Bank is in Bucket 2, with an additional 0.40% CET1 requirement
- ICICI Bank is in Bucket 1, with an additional 0.20% CET1 requirement
These capital requirements fall under the Basel III capital adequacy norms. They will take effect from April 1, 2027. The aim is to strengthen these banks, so they withstand any financial disturbance without destabilizing the economy.
Why Are D-SIBs Important?
- D-SIBs hold significant influence over India’s financial architecture. Their operations affect households, industries, markets and government programmes. Because of their size and reach, any failure can trigger a chain reaction.
- The global financial crisis of 2008 revealed the weaknesses of unregulated large banks. The collapse of major institutions disrupted economies worldwide. To avoid similar situations, global bodies introduced stricter norms.
- In 2010, the Financial Stability Board (FSB) asked member countries to identify Systemically Important Financial Institutions (SIFIs). India adopted this framework through the RBI’s D-SIB guidelines.
- The goals include:
- Reduce the risk of bank failures
- Protect the real economy from financial shocks
- Increase public confidence in the banking system
- Improve supervision of large institutions
Thus, D-SIB regulations promote long-term stability.
How Does RBI Select D-SIBs?
The RBI uses a two-step method to identify systemically important banks.
- Selection of Sample Banks:
- Not all banks undergo full assessment. Smaller banks face fewer reporting requirements because their failure poses limited systemic risk.
- The RBI shortlists banks based on size. It compares each bank’s Basel III Leverage Ratio Exposure with India’s GDP. Banks with exposure exceeding 2% of GDP enter the assessment list.
- This approach ensures that major banks receive detailed scrutiny.
- Assessment and Classification:
- The RBI calculates a composite score of each bank’s systemic importance. It uses indicators such as:
- Size
- Interconnectedness
- Substitutability
- Complexity
- Cross-border activity
- The RBI calculates a composite score of each bank’s systemic importance. It uses indicators such as:
Banks with high scores enter higher buckets and face stricter capital rules. Banks with lower scores face lighter requirements.
This systematic evaluation ensures fairness and accuracy.
Why Do Countries Establish Systemically Important Banks?
- Large banks drive financial growth. However, their failures bring huge risks.
- The 2008 global financial crisis highlighted how interconnected institutions can cause global disruptions. Governments had to intervene to save major banks. This prevented deeper economic collapse but increased public debt.
- To avoid such outcomes, global regulators recommended new policies. The FSB led the effort, emphasising the need for SIFIs and D-SIBs.
- These frameworks reduce the probability of failures and ensure better crisis management.
- Effective D-SIB regulation:
- Limits contagion effects
- Protects investors and depositors
- Ensures smooth functioning of markets
- Supports economic stability
Therefore, identifying and regulating D-SIBs remains essential for financial resilience.
Conclusion:
Domestic Systemically Important Banks form the backbone of India’s financial system. The RBI identifies these institutions based on strict criteria. SBI, HDFC Bank and ICICI Bank continue to hold D-SIB status in 2025 due to their size and importance.
Higher CET1 requirements strengthen their ability to handle financial stress. The RBI’s framework aligns with global standards and protects the Indian economy from systemic risks. These measures ensure stability, safeguard depositors and promote sustainable growth.
Sources:
- https://www.thehindu.com/business/rbi-identifies-sbi-hdfc-bank-icici-bank-as-domestic-systemically-important-banks-in-2025-list/article70350321.ece
- https://www.news18.com/business/banking-finance/rbi-has-declared-these-3-banks-as-the-safest-in-india-ws-l-9746204.html
FAQ:
D-SIBs are large, critical banks identified by the RBI as “Too Big to Fail” because their failure can seriously harm India’s financial system.
The RBI’s 2025 list includes State Bank of India (SBI), HDFC Bank, and ICICI Bank. All three retained their earlier D-SIB status.
The RBI evaluates banks based on size, interconnectedness, substitutability, complexity, and cross-border operations. Only banks exceeding 2% of GDP exposure are assessed.
In 2025:
SBI: 0.80% (Bucket 4)
HDFC Bank: 0.40% (Bucket 2)
ICICI Bank: 0.20% (Bucket 1)
These capital rules will apply from April 1, 2027
D-SIBs ensure financial stability. Their stronger regulations prevent bank failures, reduce systemic risks, protect depositors and maintain public confidence.
