RBI retains SBI, HDFC, ICICI as India’s too-big-to-fail banks

India’s central bank, the Reserve Bank of India (RBI), announced on Wednesday that the State Bank of India (SBI), HDFC Bank, and ICICI Bank remain designated as domestic systemically important banks (D-SIBs). These banks, also known as “too-big-to-fail” institutions, must adhere to specific capital requirements that aim to safeguard the financial system, according to a Reuters report.

According to the RBI, SBI and HDFC Bank will face heightened capital buffer requirements beginning April 1, 2025. SBI will be required to maintain an additional capital buffer of 0.80 per cent of its risk-weighted assets, an increase from its current 0.60 per cent. HDFC Bank, similarly, will see its buffer rise to 0.40 per cent, doubling from the current 0.20 per cent, the report added.

This regulatory move is part of the RBI’s framework, established in 2014, for managing systemically important banks. Under this system, banks are assessed and assigned to “buckets” based on their size and potential economic impact. Higher buckets carry more stringent capital requirements to mitigate these large financial entities’ risks to the economy.

SBI and ICICI Bank were the first to be recognized as D-SIBs in 2015 and 2016, respectively. HDFC Bank joined the list in 2017 and was recently moved to a higher category after merging with its parent company, HDFC, last year.

By definition, systemically important banks are those whose collapse could disrupt the financial sector and cause economic instability. This latest RBI mandate ensures these banks maintain robust financial safeguards to avoid any fallout that could affect the broader economy.

PSBs vs Private banks

Separately, a recent report by SBI highlighted robust financial performance by public sector banks (PSBs) in the second quarter of fiscal year 2025, surpassing private sector banks in net profit growth. According to the report, PSBs recorded a year-on-year profit growth of 39.3 per cent, significantly outpacing private banks, which grew by only 7.1 per cent. Key factors driving PSB growth included improved asset quality, lower provisioning costs, and higher interest income.

This marked financial resilience among PSBs is seen as a positive shift, bolstering investor confidence and market sentiment toward public sector banks. The SBI report underscored that PSBs, for the first time in recent years, have collectively achieved higher profitability than private banks, reflecting strategic improvements and operational strength.