Central banks worldwide began to look at 'too-big-to-fail' banking institutions closely after the 2008 global financial crisis
Moneycontrol News
December 28, 2023 / 08:31 PM IST
While ICICI Bank continues to be in the same bucketing structure as last year, SBI and HDFC Bank moved to higher buckets, the RBI said
The top three Indian lenders — State Bank of India, ICICI Bank, and HDFC Bank —remained Domestic Systemically Important Banks (D-SIBs) for the banking regulator as the Reserve Bank of India (RBI) listed out lenders that were too big to fail in 2023.
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 worldwide began to look at 'too-big-to-fail' banking institutions closely after the 2008 global financial crisis.
While ICICI Bank continues to be in the same bucketing structure as last year, SBI and HDFC Bank moved to higher buckets, the RBI said. For SBI and HDFC Bank, the higher D-SIB buffer requirements on account of the classification change will be effective from April 1, 2025.
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 0.80 percent CET1 as a percentage of its risk-weighted assets. Similarly, ICICI Bank and HDFC Bank need to maintain an additional 0.20 percent and 0.40 percent, respectively, the RBI said.
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The higher D-SIB surcharge for SBI and HDFC Bank will be applicable from April 1, 2025, the RBI said. Hence, up to March 31, 2025, the D-SIB surcharge applicable to SBI and HDFC Bank will be 0.60 percentand 0.20percent, respectively.
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 an additional CET1 capital surcharge in India as applicable by the rules concerning G-SIBs, the RBI rules say.
The RBI announced SBI and ICICI Bank as D-SIBs in 2015 and 2016. Based on data collected from banks as of 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 of March 31, 2023 and factoring in the increased systemic importance of HDFC Bank post the merger of erstwhile HDFC Limited into HDFC Bank on July 1, 2023, the RBI added.
Review in methodology
In a separate press release issued later, the RBI said it hasreviewed the methodology while assessing systemtically important banks. As per this, definition of payments stands revised from payments made in Rupee using RTGS and NEFT systems tothe total value of digital payments made inRupeeand the total volume of digital payments made in Rupee.
Also, the computation of systemic importance scores, based on the end-March data of all the banks in the sample, will be performed annually in the months of August-October, the RBI said.
The names of the banks classified as D-SIBs will be disclosed in the month of November every year. Accordingly, banks will be required to be in readiness to submit the required data to RBI by August 15 of each year, the RBI added.
According to the RBI, the detailed guidelines as per the revised methodology will be shared in the guidance note provided to banks included in the annual assessment each year. The revised methodology is applicable starting from the assessment exercise for 2024, the central bank said.
Moneycontrol News
Tags: #RBI #systemically important banks
first published: Dec 28, 2023 04:59 pm
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