RBI designates State Bank of India and ICICI Bank as Domestic Systemically Important Banks(DSIB's)

The Reserve Bank of India(RBI) has announced the designation of State Bank of India(SBI) and ICICI Bank  as Domestic Systemically Important Banks (D-SIBs).

The Reserve Bank had issued the Framework for dealing with Domestic Systemically Important Banks (D-SIBs) on 22 July 2014. The D-SIB Framework requires the Reserve Bank to disclose the names of banks designated as D-SIBs every year in August starting from August 2015.

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 (SBI 0.6% and ICICI Bank 0.2%), as mentioned in the D-SIB Framework.

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 selection of banks in the sample for computation of SIS is based on analysis of their size as a percentage of annual GDP.

The additional Common Equity Tier 1 (CET1) requirements applicable to D-SIBs will be applicable from 01 April 2016 in a phased manner and would become fully effective from 01 April 2019. The additional CET1 requirement will be in addition to the capital conservation buffer.

Further, as mentioned in the D-SIB Framework, 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 Designates State Bank, ICICI as DSIB's

The Reserve Bank of India on Monday August 31,2015 designated State Bank of India and ICICI Bank as Domestic Systemically Important Banks (D-SIBs), which will put them under tougher monitoring to avoid any collapse. SIBs are perceived as banks that are ‘Too Big To Fail’

The RBI said the two banks have been selected due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness. SBI alone accounts for a fifth of the banking business in India.

“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. Therefore, the continued functioning of SIBs is critical for the uninterrupted availability of essential banking services to the real economy,” RBI said while announcing the framework for dealing with D-SIBs.

Following their designation as D-SIBs, SBI and ICICI Bank must meet additional Common Equity Tier 1 (CET1) requirements from April 1, 2016, in a phased manner. The CET1 requirements will be fully effective from April 1, 2019. This means the banks will have to set aside more funds at a time when banks are battling a huge bad debt burden.

The additional requirement as a percentage of Risk Weighted Assets (or loans) for SBI and ICICI Bank have been set at 0.60 per cent and 0.20 per cent, respectively. This will be in addition to the extra capital buffers already in place under Basel-III guidelines.

Both banks said their capital base was higher than mandated. Arundhati Bhattacharya, Chairman, SBI, said, “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. We will adhere to the additional requirements as and when they become applicable.”

Chanda Kochhar, MD and CEO, ICICI Bank, said, “ICICI Bank’s capital adequacy is well in excess of regulatory requirements and the Bank is not expected to require fresh equity capital for the next couple of years."

If a foreign bank, having a presence in India, has been notified as Global Systemically Important Bank (G-SIB), it has to maintain the additional capital surcharge in India, proportionate to its Risk Weighted Assets in India. HSBC, JP Morgan Chase, Barclays and BNP Paribas are among the G-SIBs in India as per the Financial Stability Board’s list of November 2014.