Economics • Banking & FinanceHard
What is the key regulatory implication of a bank being designated as a 'Domestic Systemically Important Bank (D-SIB)' by the Reserve Bank of India?
A. The bank is considered too big to fail and is subjected to higher capital surcharge requirements due to its systemic importance✓ Correct Answer
B. The bank is exempted from maintaining Cash Reserve Ratio and Statutory Liquidity Ratio requirements during financial crises
C. The bank is permitted to operate as a universal bank without obtaining separate licenses for insurance and mutual fund subsidiaries
D. The bank receives direct budgetary capital infusions from the Union Government to cover all its non-performing assets
💡 Solution & Explanation
Domestic Systemically Important Banks are institutions whose distress or failure would cause systemic disruption to the domestic financial system, requiring them to maintain additional Common Equity Tier-1 capital surcharges. Distractors incorrectly mention reserve ratio exemptions, universal licensing privileges, or automatic budgetary coverage of non-performing assets. The Reserve Bank of India assesses banks based on size, interconnectedness, substitutability, and complexity to identify D-SIBs. This framework aligns with global standards established by the Basel Committee on Banking Supervision.
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