RBI retains too big to fail status for SBI, ICICI Bank


Mumbai: India’s largest lender State Bank of India (SBI) and largest private sector lender ICICI Bank continue to be domestic systemically important banks (D-SIBs), the central bank said Thursday.

The Reserve Bank of India (RBI) classification means their collapse could have a cascading impact on the entire financial system and the economy.

This is a repeat of a similar classification for both these lenders, made by the central bank in August last year. SBI and ICICI have been so designated on the basis of a systemic importance score, arrived at after an analysis of the banks’ size as a percentage of annual gross domestic product (GDP). Banks with assets that exceed 2% of GDP will be considered to be part of this class of lenders.

Banks which are considered systemically important will have to maintain a progressively higher share of risk weighted assets as Tier-I equity, which is a measure of the bank’s core capital.

Out of four systemic importance buckets, SBI falls in bucket three while ICICI Bank is in bucket one. The higher the bucket number, the more systemically important the bank. So, among the two, SBI is more systemically important. Under the framework for dealing with D-SIBs which was released in August 2014, systematically important banks (SIBs) will fall under four buckets initially. Banks which fall in the fourth and the highest bucket will need to maintain an additional 0.8% of their risk weighted assets as common equity Tier-1—a measure of the bank’s core equity.

Banks in the third, second and first buckets will need to maintain an additional 0.6%, 0.4% and 0.2% of additional Tier-I capital respectively to maintain buffers they hold to balance out the higher risk they pose to the financial system.

According to the framework it had announced previously, the regulator had expected at least four to six banks to qualify as D-SIBs.