Reserve Bank of India (RBI) has released its 2017 list of the Domestic Systemically Important Banks (D-SIBs). The list identifies private sector lender HDFC Bank Ltd as a D-SIB. With this inclusion in the list, the HDFC has joined State Bank of India (SBI) and ICICI Bank Ltd, which has been tagged as D-SIBs or too-big-to-fail for the consecutive third year.
Reports say that with such classification failure or collapse of these lenders can have a cascading impact on the entire financial system and the economy of the country. SIBs are subjected to higher levels of supervision so as to prevent disruption of financial services in the event of any failure.
In a statement, RBI has said, “The additional Common Equity Tier 1 (CET1) requirement for D-SIBs has already been phased-in from 1 April 2016, and will become fully effective from April 1, 2019. The additional CET1 requirement will be in addition to the capital conservation buffer.”
The updated list of D-SIBs is as follows-
| Bucket | Banks | Additional Common Equity Tier 1 requirement as a percentage of Risk Weighted Assets (RWAs) for FY 2017-18 | Additional Common Equity Tier 1 requirement applicable from April 1, 2018 (as per phase-in arrangement) |
| 5 | - | 0.50% | 0.75% |
| 4 | - | 0.40% | 0.60% |
| 3 | State Bank of India | 0.30% | 0.45% |
| 2 | - | 0.20% | 0.30% |
| 1 | ICICI Bank | 0.10% | 0.15% |
| HDFC Bank* | - | ||
| • D-SIB surcharge for HDFC Bank will be applicable from April 1, 2018. | |||
Bucket Banks Additional Common Equity Tier 1 requirement as a percentage of Risk Weighted Assets (RWAs) for FY 2017-18 Additional Common Equity Tier 1 requirement applicable from April 1, 2018 (as per phase-in arrangement
Background:
The Reserve Bank had issued the Framework for dealing with Domestic Systemically Important Banks (D-SIBs) on 22 July 2014. The D-SIB Framework requires the Reserve Bank to disclose the names of banks designated as D-SIBs every year and place these banks in appropriate buckets depending upon their Systemic Importance Scores (SISs). The first such list was released in August 2015 and had names of SBI and ICICI Bank.
Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it. In case a foreign bank having the branch presence in India 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.
The higher capital requirements are applicable from 1 April 2016 in a phased manner and will become fully effective from 1 April 2019. The additional common equity requirement for different buckets over the four-year phase-in period is as under:
| Bucket | April 1, 2016 | April 1, 2017 | April 1, 2018 | April 1, 2019 |
| 5 | 0.25% | 0.50% | 0.75% | 1.00% |
| 4 | 0.20% | 0.40% | 0.60% | 0.80% |
| 3 | 0.15% | 0.30% | 0.45% | 0.60% |
| 2 | 0.10% | 0.20% | 0.30% | 0.40% |
| 1 | 0.05% | 0.10% | 0.15% | 0.20% |
Based on the methodology provided in the D-SIB Framework and data collected from banks as on 31 March 2015 and 31 March 2016 respectively, the Reserve Bank had announced State Bank of India and ICICI Bank Ltd. as D-SIBs on 31 August 2015 and 25 August 2016 respectively. The current update is based on the data collected from banks as on 31 March 2017.
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