RBI names SBI, ICICI and HDFC as systematically important banks.
ICICI Bank and HDFC Bank’s capital requirement rises to 0.20 per cent, from 0.15 per cent now. These two banks are in the fifth basket, and are considered less important than SBI.
SIBs are subjected to higher levels of supervision so as to prevent disruption in financial services in the event of any failure.
"The additional Common Equity Tier 1 (CET1) requirement for D-SIBs has already been phased-in from April 1, 2016 and will become fully effective from April 1, 2019. The additional CET1 requirement will be in addition to the capital conservation buffer," the central bank said.
The additional CET1 core capital requirement in case of the State Bank of India applicable from April 1 has been prescribed at 0.6% of Risk Weighted Assets (RWAs) while for the other two banks it is 0.4%.
The Reserve Bank had issued the Framework for dealing with D-SIBs in July 22, 2014. The D-SIB framework requires the RBI to disclose the names of banks designated as D-SIBs starting from 2015 and place these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs). Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it.
SIBs are seen as 'too big to fail (TBTF)', creating expectation of government support for them in times of financial distress. These banks also enjoy certain advantages in funding markets.
SBI, ICICI Bank and HDFC Bank continue to be in the Reserve Bank of India’s list of Domestic Systemically Important Banks (D-SIBs) for 2018. D-SIBs are required to maintain higher capital as compared to other banks.
The additional Common Equity Tier 1 (CET1) requirement for D-SIBs has already been phased-in from April 1, 2016, and will become fully effective from April 1, 2019, the RBI said, releasing the list for 2018. The additional CET1 requirement will be in addition to the capital conservation buffer. “Current update is based on the data collected from banks as on March 31, 2018,” RBI explained.
The Reserve Bank of India (RBI) named State Bank of India (SBI), ICICI Bank and HDFC Bank as Domestic Systemically Important Banks (D-SIBs), which in other words mean banks that are too big to fail. As per the norms, these banks will have to set aside more capital for their continued operation. RBI comes with the list every year since 2015. Inclusion in D-SIB indicates that failure of any of these banks would have a cascading effect on Indian financial system.
Inclusion in the list gives additional comfort to investors that these banks won’t be allowed to fail and therefore, borrowing costs of these banks from the markets are cheaper than their peers.
SBI, being in the third bucket, was setting aside 0.45 per cent of its assets till 2018-19 as a surcharge. From next year, applicable from April 1, the bank will have to set aside 0.60 per cent of its risk-weighted assets. The increase in capital is in a phased manner, with the ultimate aim of providing one full percentage point extra as capital buffer for D-SIBs.