Banking Sector in India: SIB's

Recession: An economic crisis that affects one or more than one country.

Which organisation does Recession affect most mercilessly- The Banking Sector.

In view of the recent 2008 Global economic crisis which resulted in widespread recession across a lot of countries of the world, the Banking regulators are enforcing more tighter norms to protect the sector from future crisis and also provide them with enough teeth to fight the crisis.

The RBI has also undertaken a similar kind of measure by undertaking to identify Systematically Important Banks or SIB’s. These are those banks that are ‘too big to fail’. Under this measure the RBI will identify those banks whose failure can result in large scale disruptions of the economy.

According to the RBI these banks will be chosen based on the following parameters:

Size
Interconnectedness
Lack of readily available substitutes or financial institution infrastructure
Complexity

However, the parameter of ‘Size’ will be given the most weightage, like Banks having a size beyond 2% of GDP may be selected.

Under this, the selected banks will be asked to keep aside a part of their capital aside as a buffer stock, eg. the part may be determined as % of the loans given by the bank.

The RBI has not yet declared any names of any banks under this new directive, but its expected to come out soon.

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