Two banks of the United States, the Silicon Valley Bank and Signature Bank, collapsed in the past one week. The third bank, First Republic Bank, has been saved from the brink of collapse by other lenders by giving it a $30 billion loan. As the financial markets across the world have faced the heat of the failure of these banks there are speculations how it could impact Indian banks.
Many are doubtful whether Indian banks also collapse amid the financial uncertainties in major economies. There could be a potential worry for small players in the banking sector but the top lenders like State Bank of India (SBI), ICICI Bank and HDFC Bank may not get affected by the impact of the financial turmoil in the US market. Wondering why? Read on to know more.
SBI, ICICI Bank and HDFC Bank come under D- SIBs category, as classified by the RBI. In January, the Reserve Bank of India issued the latest list of Domestic Systemically Important Banks (D-SIBs) for 2021.
RBI continues to classify SBI, ICICI Bank and HDFC Bank in the category of D-SIBs. But, what are D-SIBs? These are the banks which are so important for the country’s economy that the government cannot afford their collapse. Hence, D-SIBs are thought of as “Too Big to Fail” (TBTF) organisations.
The system of declaring banks as D-SIBs started after the 2008 financial crisis. From 2015 onwards, RBI has been bringing out the list of D-SIBs every year. Only SBI and ICICI Bank were on the D-SIBs list in 2015 and 2016. HDFC was also included in this list from 2017.
RBI gives Systematic Importance Score to all the banks of the country on the basis of their performance and their customer base. For a bank to be listed as a D-SIB, its assets must be more than 2% of the national GDP. D-SIBs are kept 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.
D-SIB banks also have to maintain an additional fund called Common Equity Tier 1 (CET1) capital. As per the latest RBI guidelines, SBI is required to keep 0.60 per cent of its Risk Weighted Assets (RWA) as CET1 capital, while ICICI and HDFC Bank are required to keep 0.20 per cent additional CET1 capital.
RBI continues to classify SBI, ICICI Bank and HDFC Bank in the category of D-SIBs. But, what are D-SIBs? These are the banks which are so important for the country's economy that the government cannot afford their collapse. Hence, D-SIBs are thought of as “Too Big to Fail” (TBTF) organisations.
The usual three — State Bank of India among public sector banks and HDFC Bank and ICICI Bank among private banks — found mention in the list. Colloquially, such banks are reckoned as 'too big to fail' and certainly so because they represent over 50 per cent of the country's total banking system.
Both liquidity and concentration in certain industries were issues that led to the demise of three mid-sized banks last year: Silicon Valley Bank, First Republic Bank, and Signature Bank.
During the 2008 financial crisis, so-called too-big-to-fail banks were deemed too large and too intertwined with the U.S. economy for the government to allow them to collapse despite their role in causing the subprime loan crash.
Which bank is the safest bank in India? SBI, or the State Bank of India, is amongst the safest banks in India. The Reserve Bank of India regulates the bank and is the most significant public sector bank.
Kotak Mahindra is one of the fastest growing banks in India, and the flagship for the financial services conglomerate Kotak Group. The bank's product offer is huge, with a range of services and accounts for personal, corporate, business and private customers.
RBI continues to classify SBI, ICICI Bank and HDFC Bank in the category of D-SIBs. But, what are D-SIBs? These are the banks which are so important for the country's economy that the government cannot afford their collapse. Hence, D-SIBs are thought of as “Too Big to Fail” (TBTF) organisations.
When a bank fails, the FDIC or a state regulatory agency takes over and either sells or dissolves the bank. Most banks in the US are insured by the FDIC, which provides coverage up to $250,000 per depositor, per FDIC bank, per ownership category.
Overall, Bank of America appears to be in a relatively healthy financial position and is not currently in imminent danger of collapse. However, as with any financial institution, there are always risks involved, and customers and investors should always monitor the bank's financial health and risk profile.
The collapse of Washington Mutual (WaMu) in 2008 stands out as the largest bank failure in U.S. history, according to the FDIC. When regulators seized it, WaMu had more than $300 billion in assets and $188 billion in deposits, making it the sixth-largest U.S. bank.
The blacklisted banks include Punjab National Bank, ICICI Bank, Andhra Bank, Bank of Maharashtra, Punjab and Sindh bank, Vijaya bank, Federal bank, Jammu Kashmir Bank, South Indian bank, ING Vysa Bank, Kotak Mahindra Bank, Bombay Mercantile Cooperative bank and Tapeshwar Urban Cooperative Bank.
ABG Shipyard Ltd, accused in India's biggest bank fraud case, created 27 "paper companies" and used 38 Singapore-based group entities to divert funds borrowed from ICICI Bank-led lenders. The Enforcement Directorate's chargesheet reveals that the diverted funds were transferred to Singapore and invested in tax havens.
Credit risk is the biggest risk for banks. It occurs when borrowers or counterparties fail to meet contractual obligations. An example is when borrowers default on a principal or interest payment of a loan. Defaults can occur on mortgages, credit cards, and fixed income securities.
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