RBI’s Latest Review Reinforces SBI, HDFC and ICICI as India’s Most Systemically Important Banks

The Reserve Bank of India’s latest announcement has reaffirmed the classification of State Bank of India, HDFC Bank and ICICI Bank as Domestic Systemically Important Banks (D-SIBs). This designation places the country’s three largest lenders at the core of India’s financial stability architecture, underscoring their scale, interconnectedness and critical importance to the economy. As in previous years, these banks will continue to maintain higher capital buffers to protect against systemic risks and strengthen the resilience of the financial system.

The move reflects the RBI’s long-term effort to ensure that institutions whose functioning is vital to the national economy remain well-capitalised and capable of absorbing financial stress. In a banking ecosystem that supports one of the world’s fastest-growing major economies, systemically important institutions play a pivotal role in ensuring continuity, confidence and smooth functioning across the financial sector.

Understanding the Implications of Systemic Importance

The designation of SBI, HDFC Bank and ICICI Bank as D-SIBs means they are considered institutions whose failure could significantly affect the broader financial system and the real economy. To mitigate this risk, the RBI requires these banks to hold additional Common Equity Tier 1 (CET1) capital over and above the standard Capital Conservation Buffer. These buffers act as a financial shield, ensuring that during periods of stress, banks retain enough high-quality capital to sustain operations, absorb losses and maintain credit flow to the economy.

According to the latest update, SBI must maintain an additional CET1 requirement of 0.80 percent of risk-weighted assets (RWAs). For HDFC Bank, the requirement is 0.40 percent, while ICICI Bank must hold an additional 0.20 percent. These differentiated capital requirements correspond to each bank’s Systemic Importance Score (SIS), which reflects size, complexity and interconnectedness within the financial ecosystem.

A Framework Rooted in Global Best Practices

India’s D-SIB framework, introduced on July 22, 2014 and updated on December 28, 2023, aligns with global regulatory standards developed in the aftermath of the 2008 financial crisis. The approach mirrors the methodology adopted by the Financial Stability Board (FSB) for identifying Global Systemically Important Banks (G-SIBs), adapted to India’s market structure and domestic priorities.

Under this framework, the RBI annually assesses banks based on quantitative indicators such as balance sheet size, interconnected liabilities, complexity of operations, substitutability, and cross-jurisdictional activity. Institutions crossing specific thresholds are classified as D-SIBs and placed into different buckets that determine the level of additional capital they must maintain.

SBI and ICICI Bank were the first institutions to receive this classification in 2015 and 2016, respectively. HDFC Bank was designated a D-SIB in 2017. The continued inclusion of all three banks reflects their sustained growth, deep market presence and essential roles across retail, corporate and digital banking ecosystems.

Strengthening Financial System Stability Through Capital Strength

The requirement for higher capital is not merely a regulatory formality; it plays a crucial role in stabilising the broader financial system. Systemically important banks carry significant exposure to households, businesses, government entities and financial markets. Their performance influences credit availability, capital flows, market confidence and liquidity conditions. By mandating stronger capital positions, the RBI aims to reduce the probability of distress and ensure that any potential stress event is absorbed internally rather than transmitted across the system.

The additional CET1 requirements also create a strong incentive for these banks to adopt disciplined risk management practices and maintain robust balance sheet health. For investors and depositors, the D-SIB designation provides a signal of institutional strength, transparency and regulatory confidence.

The Broader Role of D-SIBs in India’s Economic Ecosystem
 

SBI, HDFC Bank and ICICI Bank collectively account for a substantial share of India’s banking activity, from retail lending and MSME finance to corporate credit, digital payments and trade facilitation. Their large customer bases, nationwide networks and deep technological investments make them central to financial inclusion and economic expansion.

In recent years, these banks have also been instrumental in rolling out government-led initiatives such as digital banking, Jan Dhan accounts, UPI adoption, credit distribution to priority sectors and infrastructure financing. Their operational continuity is essential for executing national development goals, especially as India accelerates investment in manufacturing, logistics, renewable energy and urban infrastructure.

Because these institutions operate across multiple segments, from treasury and investment banking to rural credit delivery, their stability has ripple effects across nearly every part of the economy. The D-SIB designation ensures that their expansion is supported by strong risk buffers.
 

A Regulatory Approach That Builds Long-Term Resilience

India’s banking system has demonstrated notable resilience, supported by improved asset quality, higher capitalisation and robust regulatory oversight. The D-SIB framework is an important component of this resilience, helping to minimise systemic vulnerabilities and strengthen public trust.

By publicly naming the banks classified as D-SIBs each year, the RBI also reinforces transparency. This proactive communication approach allows markets, rating agencies and stakeholders to better assess risks and plan accordingly. As the financial sector becomes more interconnected through digital ecosystems, payments infrastructure and fintech partnerships, the importance of such safeguards will continue to grow.

Looking Ahead: A Stable Foundation for Future Growth

With India projected to remain one of the world’s fastest-growing large economies, the strength of its banking system is a foundational requirement for sustaining investment, credit expansion and financial innovation. By reaffirming SBI, HDFC Bank and ICICI Bank as Domestic Systemically Important Banks, the RBI is reinforcing the stability of core institutions that anchor the country’s financial architecture.

These banks, equipped with stronger capital buffers and regulatory oversight, will continue to play a central role in supporting growth, strengthening credit delivery and ensuring resilience. As economic activity expands across sectors, their stability will remain essential to India’s long-term developmental trajectory, and to the confidence of millions of consumers and businesses who depend on them every day.