RBI lists SBI, ICICI Bank as domestic systemically important banks

The Reserve Bank of India on Monday announced the designation of state-run State Bank of India (SBI) and top private sector lender ICICI Bank Ltd as domestic systemically important banks (D-SIBs).

Under the RBI framework for dealing with domestic systemically important banks (D-SIBs) issued on 22 July 2014, the central bank requires 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, 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.

Based on the methodology provided in the D-SIB framework and data collected from banks as of 31 March 2015, State Bank of India, which is placed in Bucket 3, needs to have an additional common equity Tier 1 capital of 0.6 per cent while ICICI Bank, which is in Bucket 1, needs to have additional Tier 1 capital of 0.2 per cent.

Banks placed in bucket 5 of domestic systemically important list to have additional 1 per cent of their risk weighted assets (RWAs) as common equity Tier 1 capital, followed by 0.8 per cent for banks in Bucket 4, 0.6 per cent for banks in Bucket 3, 0.4 per cent for banks in Bucket 2 and 0.2 per cent for banks in Bucket 1.

The additional common equity Tier 1 (CET1) requirements applicable to D-SIBs will be applicable from 1 April 2016 in a phased manner and would become fully effective from 1 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, which 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.