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RBI declared SBI and ICICI Bank as Domestic Systemically Important Banks

Sep 1, 2015 16:17 IST

The Reserve Bank of India (RBI) on 31 August 2015 declared State Bank of India (SBI) and ICICI Bank as Domestic Systemically Important Banks (D-SIBs) in line with the D-SIB Framework released by the RBI on 22 July 2014.

These banks have been identified as D-SIBs based on the methodology provided in the D-SIB Framework and data collected from banks as on 31 March 2015.

Further, these banks have been put under associated bucket structure as required under the D-SIB Framework and each bucket corresponds to the higher loss absorbency requirements that they would be required to hold from January 2016.

As a result, SBI has been put under Bucket 3 with additional Common Equity Tier 1 (CET1) requirements as a percentage of Risk Weighted Assets (RWAs) placed at 0.6percent.

On the other hand, ICICI Bank has been put under Bucket 1 with additional CET1 requirements as a percentage of RWAs placed at 0.2 percent.

Framework for dealing with D-SIB

Framework for dealing with D-SIB was issued by the RBI on 22 July 2014 as required under the October 2010 recommendations of the Financial Stability Board (FSB) following the 2008 global financial crisis. In its recommendation FSB called all member countries to put in place a framework to reduce risks attributable to Systemically Important Financial Institutions (SIFIs) in their jurisdictions.

As part of the framework, D-SIBs were placed in four buckets  depending upon their Systemic Importance Scores (SISs) in ascending order and will be required to have additional Common Equity Tier 1 capital requirement ranging from 0.20% to 0.80% of risk weighted assets.

The additional CET1 requirements applicable to D-SIBs will become effective 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.

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 to it as a G-SIB, proportionate to its RWAs in India.

How to identify a D-SIB?

In order to identify a D-SIB, 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.

In line with this, RBI adopted an assessment methodology primarily based on the Basel Committee on Banking Supervision (BCBS) methodology for identifying the G-SIBs with suitable modifications to capture domestic importance of a bank.

The indicators used for assessment are: size, interconnectedness, substitutability and complexity. Based on the sample of banks chosen for computation of their systemic importance, a relative composite systemic importance score of the banks will be computed.

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