The Reserve Bank of India (RBI) has identified the State Bank of India (SBI) and ICICI Bank as Domestic Systemically Important Banks (D-SIBs), or too big to fail banks.
This is the first time that the central bank has designated banks as D-SIBs, with the practice to be carried out every year from now on.
The designation is based on a systemic importance score (SIS), with the selection of banks for computation of SIS based on analysis of their size as a percentage of annual GDP, RBI said in a statement.
Banks deemed systematically important will be required to have additional Common Equity Tier 1 (CET1) capital requirement ranging from 0.2% to 0.8% of risk weighted assets.
Under the norms laid out for SIBs, additional CET1 requirement will be 0.6% for SBI and 0.2% for ICICI Bank.
The additional CET1 requirements will be effective from 1 April 2016, in a phased manner and would be fully effective on 1 April 2019.
The D-SIB framework will initially include four systemic importance buckets, with the higher bucket number indicating a bank’s higher level of systemic importance.
As per the new rules, SBI falls in bucket three while ICICI Bank falls in bucket one.
Also, "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 Risk Weighted Assets (RWAs) in India," the statement added.