The Reserve Bank of India (RBI) on Monday declared State Bank of India and ICICI Bank as Domestic Systemically Important Banks (D-SIBs). The RBI had issued the framework for dealing with Domestic Systemically Important Banks (D-SIBs) on July 22, 2014.
The D-SIB framework requires the RBI to disclose the names of banks designated as D-SIBs every year in August starting from August 2015, said RBI in a press release.
“The framework also requires that D-SIBs may be placed in four 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, as mentioned in the D-SIB framework,” it added.
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The D-SIB framework specifies a two-step process of identification of D-SIBs. In the first step, the sample of banks to be assessed for systemic importance has to be decided. The additional Common Equity Tier-1 (CET1) requirements applicable to D-SIBs will be applicable from April 1, 2016 in a phased manner and would become fully effective from April 1, 2019. The additional CET1 requirement will be in addition to the capital conservation buffer, said RBI.
RBI also said that 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.
“RBI has named State Bank of India as Domestic Systemically Important Bank as expected. However, the additional capital requirement of Tier-I capital has been lowered by 20 basis points as compared to draft guidelines. SBI currently has a much higher level of Tier-I at 9.62 per cent as opposed to 7 per cent required under the current guidelines,” said Arundhati Bhattacharya, Chairman, SBI.
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“Given our size and significant presence across the financial sector, it was expected that ICICI Bank would be classified as systemically important, said Chanda Kochhar, MD and CEO, ICICI Bank. According to Ms. Kochhar, the bank’s capital adequacy is well in excess of regulatory requirements