Domestic Systemically Important Banks (Prelims & Mains- Economy)
Why in news?
The Reserve Bank of India (RBI) retained the State Bank of India, HDFC Bank and ICICI Bank as Domestic Systemically Important Banks (D-SIBs).
All three banks continue to be under the same bucketing structure as in the 2023 list of D-SIBs.
The RBI had issued the framework for dealing with D-SIBs in July 2014. Since 2015, the RBI has been disclosing the names of the banks classified as D-SIBs every year.
While the Reserve Bank had announced SBI and ICICI Bank as D-SIBs in 2015 and 2016, HDFC Bank was classified as D-SIB in 2017 along with SBI and ICICI Bank.
What are Domestic Systemically Important Banks (D-SIBs)?
SIBs are perceived as banks that are ‘Too Big To Fail (TBTF)’.
Some banks, due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness, become systemically important. The disorderly failure of these banks has the potential to cause significant disruption to the essential services they provide to the banking system, and in turn, to the overall economic activity. These banks are termed as ‘Domestic Systemically Important Banks (D-SIBs)’.
Why have D-SIBs been created?
The continued functioning of Systemically Important Banks (SIBs) is critical for the uninterrupted availability of essential banking services to the real economy.
What are the capital requirements for D-SIBs?
Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it. The additional capital requirement ranges from 0.20 per cent to 0.80 per cent of risk weighted assets.
The additional common equity tier 1 (CET1) requirement as a percentage of Risk Weighted Assets (RWAs) for SBI is 0.80 per cent, for HDFC Bank is 0.40 per cent, and that for ICICI Bank is 0.20 per cent.
In case a foreign bank having branch presence in India is a Global Systemically Important Bank (G-SIB), it has to maintain additional CET1 capital surcharge in India as applicable to it as a G-SIB, proportionate to its Risk Weighted Assets (RWAs) in India, i.e., additional CET1 buffer prescribed by the home regulator (amount) multiplied by India RWA as per consolidated global Group books divided by total consolidated global Group RWA.
How are D-SIBs selected?
The process of assessment of systemic importance of banks by the RBI is a two-step process:
- In the first step, a sample of banks to be assessed for their systemic importance are decided. The systemic importance of all the banks need not be computed as many smaller banks.
- Once the sample of banks is selected, a detailed study to compute their systemic importance is initiated. Based on a range of indicators, a composite score of systemic importance for each bank in the sample is computed. The banks having systemic importance above a threshold are designated as D-SIBs. D-SIBs are segregated into different buckets based on their systemic importance scores, and subject to loss absorbency capital surcharge in a graded manner depending on the buckets, in which they are placed. A D-SIB in the lower bucket attracts lower capital charge and a D-SIB in higher bucket attracts a higher capital charge.
Further the D-SIB framework requires that “The assessment methodology for assessing the systemic importance of banks and identifying D-SIBs will be reviewed on a regular basis. However, this review will be at least once in three years.”
Different Buckets:
Banks are allocated different buckets based on their systemic importance score. The RBI has placed SBI in bucket 4, HDFC Bank in bucket 3 and ICICI Bank in bucket 1.
Which are global SIBs?
The Financial Stability Board (FSB), in consultation with the Basel Committee on Banking Supervision (BCBS) and national authorities, has identified the 2023 list of global systemically important banks (G-SIBs). The list for 2023 includes 29 G-SIBs, one less than the 2022 list. The G-SIBs include JP Morgan Chase, Bank of America, Citigroup, HSBC, Agricultural Bank of China, Bank of China, Barclays and BNP Paribas.
Source: The Indian Express
Volcanic eruption in Bali (Prelims & Mains- Geography)
Why in news?
Indonesia’s Mount Lewotobi Laki Laki has erupted again, spewing a column of hot clouds from its peak three days after a midnight eruption killed nine people and injured dozens of others, and flights also got cancelled.
What is a volcano?
A volcano is a place where gases, ashes and/or molten rock material – lava – escape to the ground. A volcano is called an active volcano if the materials mentioned are being released or have been released out in the recent past.
The layer below the solid crust is the mantle. It has a higher density than that of the crust. The mantle contains a weaker zone called the asthenosphere. It is from this that the molten rock materials find their way to the surface.
The material in the upper mantle portion is called magma. Once it starts moving towards the crust or it reaches the surface, it is referred to as lava. The material that reaches the ground includes lava flows, pyroclastic debris, volcanic bombs, ash and, dust and gases such as nitrogen compounds, sulphur compounds and minor amounts of chlorene, hydrogen and argon.
Volcanic eruption forms another source of obtaining direct information.
Types of volcanoes
Volcanoes are classified on the basis of nature of eruption and the form developed at the surface. Major types of volcanoes are as follows:
- Shield volcano: Barring the basalt flows, the shield volcanoes are the largest of all the volcanoes on the earth.
- Composite Volcanoes (strato volcanoes): These volcanoes are characterised by eruptions of cooler and more viscous lavas than basalt. These volcanoes often result in explosive eruptions. Along with lava, large quantities of pyroclastic material and ashes find their way to the ground.
- Caldera: These are the most explosive of the earth’s volcanoes. They are usually so explosive that when they erupt they tend to collapse on themselves rather than building any tall structure. The collapsed depressions are called calderas.
- Flood Basalt Provinces: These volcanoes outpour highly fluid lava that flows for long distances. Some parts of the world are covered by thousands of sq. km of thick basalt lava flows.
- Mid-Ocean Ridge Volcanoes: These volcanoes occur in the oceanic areas. There is a system of mid-ocean ridges more than 70,000 km long that stretches through all the ocean basins.
About Mount Lewotobi Loki Loki Volcano:
Lewotobi Laki Laki is one of a pair of stratovolcanoes (Composite volcanoes) in the East Flores district of East Nusa Tenggara province, known locally as the husband-and-wife mountains. “Laki laki” means man, while its mate is Lewotobi Perempuan, or woman.
Lewotobi Laki Laki is one of the 120 active volcanoes in Indonesia, an archipelago of 280 million people. The country is prone to earthquakes, landslides and volcanic activity because it sits along the “Ring of Fire,” a horseshoe-shaped series of seismic fault lines around the Pacific Ocean.
Inaugural Indian Ocean Dialogue (Prelims & mains- IR)
Why in news?
The inaugural U.S.-India Indian Ocean Dialogue is to be held. The two sides will discuss measures to promote security and prosperity throughout the Indo-Pacific region.
What is the Indian Ocean Dialogue?
The Indian Ocean Dialogue (IOD) is a flagship initiative of the Indian Ocean Rim Association (IORA), established by the 13th Council of Ministers’ meeting held in November 2013 in Perth, Australia.
Through the years, IOD has established itself as a stand-alone Track, encouraging for an open and free dialogue by key representatives of IORA Member States, such as scholars, experts, analysts, and policymakers from governments, think tanks and civil societies on several crucial strategic issues of the Indian Ocean Region.
Member countries of IOD:
- Australia:-Capital: Canberra
- France:-Capital: Paris
- India:-Capital: New Delhi
- Kenya:-Capital: Nairobi
- Malaysia:-Capital: Federal Territory of Kuala Lumpur
- Maldives:- Capital: Malé
- Mauritius:- Capital: Port Louis
- Mozambique:- Capital: Maputo
- Oman:- Capital: Muscat
- Seychelles:- Capital: Victoria
- Singapore
- Somalia:- Capital: Mogadishu
- South Africa:- Capital: Cape Town, Pretoria, Bloemfontein
- Sri Lanka:- Capital: Colombo, Sri Jayawardenepura Kotte
- Tanzania:- Capital: Dodoma
Dialogue between India and U.S.
- Deepening the ongoing cooperation over the Indian Ocean Region, India and the U.S. are set to hold the inaugural U.S.-India Indian Ocean Dialogue.
- The two sides will “discuss measures to promote security and prosperity throughout the Indo-Pacific region.
- The Critical and Emerging Technologies (iCET) Intersessional to further expand cooperation between the two countries on technological innovation and production is also scheduled to be held.
- The India-U.S. cooperation over the Indo-Pacific goes back several years. In January 2015, during the visit of President Barack Obama to India, both sides had issued their Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region.
In addition to the bilateral cooperation, there is significant regional and multilateral cooperation. The Quad grouping, comprising India, Australia, Japan and the U.S., is primarily focused on the IOR, and the grouping has announced the Indo-Pacific Maritime Domain Awareness initiative as a global good for the entire region.