The Reserve Bank of India (RBI) on Thursday said it has identified public sector lender State Bank of India (SBI) and its private sector peer ICICI Bank as domestic systemically important banks (D-SIBs) in 2016 and has also retained their bucketing structure from last year.
According to the RBI, the additional Common Equity Tier 1 (CET1) requirement for these banks has already been phased-in from April 1, 2016, and would become fully effective from April 1, 2019. “The additional CET1 requirement will be in addition to the capital conservation buffer,” it said.
The D-SIB framework requires the RBI to disclose the names of banks designated as D-SIBs every year in August starting 2015. SIBs are perceived as banks that are ‘Too Big To Fail (TBTF)’ which creates an expectation of government support for these banks at the time of distress. Due to this perception, the RBI had said, these banks enjoy certain advantages in the funding markets.
“However, the perceived expectation of government support amplifies risk-taking, reduces market discipline, creates competitive distortions, and increases the probability of distress in the future. These considerations require that SIBs should be subjected to additional policy measures to deal with the systemic risks and moral hazard issues posed by them,” it explained.
The process of assessment of systemic importance of banks is a two-step process. In the first step, sample of banks to be assessed for their systemic importance will be decided by RBI. “It is felt that systemic importance of all the banks need not be computed as many smaller banks would be of lower systemic importance and burdening these banks with onerous data requirements on a regular basis may not be prudent,” it said.
D-SIBs are segregated into different buckets based on their systemic importance scores, and subject to loss absorbency capital surcharge in a graded manner depending on the buckets, in which they are placed. “A D-SIB in lower bucket will attract lower capital charge and a D-SIB in higher bucket will attract higher capital charge,” the RBI said.