MUMBAI: The Reserve Bank of India (RBI) yesterday said that the State Bank of India (SBI), ICICI Bank, and HDFC Bank continue to be identified as Domestic Systemically Important Banks (D-SIBs) or institutions which are ‘too big to fail’.
The RBI announced SBI and ICICI Bank as D-SIBs in 2015 and 2016. Based on data collected from banks as of March 31, 2017, HDFC Bank was also classified as a D-SIB. The current update is based on data collected from banks as on March 31, 2022.
“SBI, ICICI Bank and HDFC Bank continue to be identified as Domestic Systemically Important Banks (D-SIBs), under the same bucketing structure as in the 2021 list of D-SIBs. The additional Common Equity Tier 1 (CET1) requirement for D-SIBs was phased in from April 1, 2016, and became fully effective from April 1, 2019,” said the central bank in a statement.
“The additional Common Equity Tier 1 requirement will be in addition to the capital conservation buffer,” it added. SIBs are perceived as banks that are ‘too big to fail (TBTF)’. This perception of TBTF creates an expectation of government support for these lenders in times of distress.
Because of this, these banks enjoy certain advantages in the funding markets. The framework for dealing with D-SIBs was issued in July 2014. The framework requires the central bank to disclose the names of banks designated as D-SIBs starting from 2015 and place these lenders in appropriate buckets depending upon their Systemic Importance Scores (SISs).
Based on the bucket in which a Domestic Systemically Important Banks placed, an additional common equity requirement has to be applied to it. The Additional Common Equity Tier 1 requirement as a percentage of Risk Weighted Assets (RWAs) in case of SBI is 0.6 percent, and 0.2% for ICICI Bank and HDFC Bank.