RBI today identified state-owned SBI and private sector ICICI Bank as systemically important banks and subjected them to higher levels of supervision to prevent disruption to financial services in event of any failure.
“The Reserve Bank of India announced today the designation of State Bank of India and ICICI Bank Ltd as Domestic Systemically Important Banks (D-SIBs),” the central bank said in a statement.
“D-SIBs will be subjected to differentiated supervisory requirements and higher intensity of supervision based on the risks they pose to the financial system,” the central bank said in a statement.
As per the framework for dealing with D-SIBs, RBI will determine a cut-off score beyond which banks will be considered as D-SIBs.
Banks will be plotted into four different buckets and will be required to have additional Common Equity Tier 1 (CET1) capital requirement ranging from 0.2 per cent to 0.8 per cent of risk weighted assets, depending upon the bucket they are plotted into.
Additional CET1 requirement as a percentage of Risk Weighted Assets (RWAs) for SBI is 0.6 per cent and that of ICICI Bank is 0.2 per cent, RBI said
The additional CET1 requirements will be applicable from April 1, 2016, in a phased manner and would become fully effective from April 1, 2019. The additional CET1 requirement will be in addition to the capital conservation buffer.
The framework requires RBI to disclose the names of banks designated as D-SIBs every year in August starting from August 2015.
Systemically important banks are perceived as banks that are ‘Too Big To Fail (TBTF)’. This perception of TBTF creates an expectation of government support for these banks at the time of distress. Due to this perception, 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.