RBI retains 'too big to fail' status of SBI, ICICI Bank

The Reserve Bank of India (RBI) has retained the "domestic systemically important banks" status of State Bank of India (SBI) and ICICI Bank, the nation's top two lenders by assets – something equivalent to "too big to fail" status that the US Fed bestowed on some major banks after the 2008 financial market collapse.

The two banks had been assigned the status last year, the first time the central bank moved to such a classification. But this classification necessitates the two banks to have additional capital in excess of other major banks.

In compiling the list, the RBI considers factors including size, complexity, interconnectedness, international links among others.

RBI also released draft guidelines on large exposure framework for banks to avoid concentration of its assets to a single counterparty or a group of connected counterparties.

The large exposure (LE) limit in respect of each counterparty and group of connected counterparties, under normal circumstances, will be capped at 20 per   cent and 25 per cent, respectively, of the eligible capital base.

The eligible capital base will be defined as the Tier 1 capital of the bank as against 'Capital Funds' at present.

A group of connected counterparties will be identified on the basis of 'control' as well as 'economic dependence' criteria.

The proposed LE framework will be fully applicable with effect from 31 March 2019.

As a first step to address the concentration risk, the Reserve Bank, in March 1989, fixed limits on bank exposures to an individual business concern and to business concerns of a group. RBI's prudential exposure norms have evolved since then and a bank's exposure to a single borrower and a borrower group is currently restricted to 15 per cent and 40 per cent of capital funds, respectively.