11.Current Banking issues Flashcards
What are Domestically Systemic Important Banks (DSIB)?
DSIB refers to banks that assume systematic importance due to their size, cross-jurisdictional activities, complexity, lack of substitutability, and interconnectedness.
Why are DSIBs considered important?
The disorderly failure of DSIBs can cause significant disruption to essential banking services and interfere with overall economic activities. Their continued functioning is critical for the uninterrupted availability of essential banking services to the real economy.
What is the significance of the “Too Big To Fail” (TBTF) perception?
DSIBs are perceived as TBTF, meaning there is an expectation of government support for these banks in times of distress.
What factors are considered for giving DSIB status to a bank?
Factors considered for giving DSIB status include size, complexity, substitutability, and interconnectedness. Size carries the highest weightage at 40%, followed by complexity, substitutability, and interconnectedness at 20% each.
How many DSIBs are there in India?
There are three DSIBs in India: State Bank of India (SBI), Housing Development Finance Corporation Limited (HDFC), and Industrial Credit and Investment Corporation of India (ICICI).
What are the bucket systems for DSIBs?
DSIBs have to hold additional capital based on their tier 1 capital of Total Risk Controlling Assets (TRWA). The bucket system consists of five buckets with different percentage requirements: 0.2%, 0.4%, 0.6%, 0.8%, and 1%.
Which bucket does SBI fall into as a DSIB?
SBI falls into the 0.6% bucket of DSIBs.
Which bucket do HDFC and ICICI fall into as DSIBs?
HDFC and ICICI fall into the 0.2% bucket of DSIBs.
What is the requirement for DSIBs in terms of their assets?
DSIBs are required to have assets exceeding 2% of the national GDP.
What is the benefit of DSIB status for banks?
Banks with DSIB status receive government support, which strengthens their ability to withstand potential collapses.
What is the term used to describe loans that are not performing well?
Stressed assets.
What is a Non-Performing Asset (NPA)?
An NPA refers to a loan whose interest or installment is due for more than 90 days.
What are restructured loans?
Restructured loans are loans or assets that have been modified by extending the repayment duration, reducing the interest rate, or employing other means to facilitate repayment.
What does “write off” mean in the context of banking?
Write off refers to loans or assets that are not counted as dues and are compensated for in some other way. Banks consider them as losses.
What is the provision of bad debt?
Provision of bad debt is an accounting measure where banks set aside funds to cover future losses due to bad debts.
