The Reserve Bank of India (RBI) on January 2 said State Bank of India, ICICI Bank, and HDFC Bank continue to be identified as Domestic Systemically Important Banks (D-SIBs). The central bank said this while releasing the 2022 list of D-SIBs under the same bucketing structure as in the 2021 list of D-SIBs.
In simple terms, D-SIBs are those interconnected entities, whose failure can impact the whole of the financial system and create instability. Systemically important banks attract closer supervision and regulation from the country’s central bank as these entities are considered to be too big-to-fail banking companies.
Central banks world-over began to look at ‘too-big-to-fail’ banking institutions closely after the 2008 global financial crisis.
In addition to the usual capital conservation buffer, D-SIBs will need to maintain additional Common Equity Tier 1 (CET1). As per the RBI’s latest press release, SBI will have to maintain an additional 0.60% CET1 as a percentage of its risk-weighted assets. Similarly, ICICI Bank and HDFC Bank need to maintain additional 0.20 per cent each, the RBI said.
The RBI first issued the framework for dealing with D-SIBs on July 22, 2014. The D-SIB framework requires the central bank to disclose the names of banks designated as D-SIBs starting from 2015 and place these banks in appropriate buckets depending upon their systemic importance.
Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it. Similarly, 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 by the rules concerning G-SIBs, the RBI rules say.
Only 3 banks so far in the list
The RBI had announced SBI and ICICI Bank as D-SIBs in 2015 and 2016. Based on data collected from banks as on March 31, 2017, HDFC Bank was also classified as a D-SIB, along with SBI and ICICI Bank.
The current update is based on the data collected from banks as on March 31, 2022, the RBI said.
In September, 2015, global rating agency Moody’s had raised a few questions on the RBI’s decision to award the D-SIBs status to only two banking entities initially.
The agency had said the central bank’s approach on D-SIBs or ‘too-big-to fail’ entities is ‘less stringent’ than other jurisdictions, hence credit negative.