Introduction: The Reserve Bank of India (RBI) has recently unveiled its 2023 list of Domestic Systemically Important Banks (D-SIBs), designating key players in the Indian banking sector. Notably, State Bank of India (SBI), HDFC Bank, and ICICI Bank maintain their D-SIB status, with significant changes in their systemic importance categories.
Detailed Analysis:
1. Shifts in Systemic Importance: SBI and HDFC Bank witness noteworthy shifts in their systemic importance buckets. SBI moves from bucket 3 to bucket 4, while HDFC Bank escalates from bucket 1 to bucket 2. This reclassification triggers higher D-SIB buffer requirements effective from April 1, 2025, impacting their Common Equity Tier 1 (CET1) ratios.
2. Additional CET1 Requirements: The D-SIBs are subjected to additional CET1 requirements based on their respective buckets. SBI incurs a 0.80% requirement, HDFC Bank at 0.40%, and ICICI Bank at 0.20%. These requirements, in addition to the capital conservation buffer, will come into effect on April 1, 2025, reshaping the capital landscape for these banks.
3. Background of D-SIB Framework: The D-SIB framework, initiated by RBI in 2014, mandates the disclosure of D-SIBs and their categorization into buckets. The framework aims to manage and regulate banks based on their Systemic Importance Scores (SISs), ensuring a resilient financial system.
4. Historical Perspective: The journey of identifying D-SIBs began in 2015 with SBI and extended to ICICI Bank in 2016. HDFC Bank joined the list in 2017. The recent update, based on March 31, 2023, incorporates the heightened systemic importance of HDFC Bank following the merger with HDFC Limited on July 1, 2023.
5. Global Context: The framework extends to foreign banks operating in India, aligning with their Global Systemically Important Bank (G-SIB) status. These banks are obligated to maintain additional CET1 capital surcharge proportional to their Risk Weighted Assets (RWAs) in India.
Conclusion: In conclusion, the RBI’s release of the 2023 list of D-SIBs marks a pivotal moment in the regulatory landscape. The shifts in systemic importance for SBI and HDFC Bank underscore the dynamic nature of financial institutions. The additional CET1 requirements reflect the RBI’s commitment to fortifying the financial sector’s stability. As we move towards April 1, 2025, these changes will reshape the capital dynamics of key players in the Indian banking industry, contributing to a more robust and resilient financial system.
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Reserve Bank of India
RBI releases 2023 list of Domestic Systemically Important Banks (D-SIBs)
Date : Dec 28, 2023
SBI, HDFC Bank and ICICI Bank continue to be identified as Domestic Systemically Important Banks (D-SIBs). While ICICI Bank continues to be in the same bucketing structure as last year, SBI and HDFC Bank move to higher buckets – SBI shifts from bucket 3 to bucket 4 and HDFC Bank shifts from bucket 1 to bucket 2. For SBI and HDFC Bank, the higher D-SIB buffer requirements on account of the bucket increase will be effective from April 1, 2025. The additional Common Equity Tier 1 (CET1) requirement will be in addition to the capital conservation buffer.
The list of D-SIBs is as follows:
|
Bucket |
Banks | Additional Common Equity Tier 1 requirement as a percentage of Risk Weighted Assets (RWAs) |
| 5 | – | 1% |
| 4 | State Bank of India* | 0.80% |
| 3 | – | 0.60% |
| 2 | HDFC Bank* | 0.40% |
| 1 | ICICI Bank | 0.20% |
| * The higher D-SIB surcharge for SBI and HDFC Bank will be applicable from April 1, 2025. Hence, up to March 31, 2025, the D-SIB surcharge applicable to SBI and HDFC Bank will be 0.60% and 0.20% respectively. | ||
Background:
The Reserve Bank had issued the Framework for dealing with Domestic Systemically Important Banks (D-SIBs) on July 22, 2014. The D-SIB framework requires the Reserve 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 Scores (SISs). Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it. 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, i.e., additional CET1 buffer prescribed by the home regulator (amount) multiplied by India RWA as per consolidated global Group books divided by total consolidated global Group RWA.
The Reserve Bank had announced SBI and ICICI Bank as D-SIBs in 2015 and 2016. Based on data collected from banks as on 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 on 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.
(Yogesh Dayal)
Chief General Manager
Press Release: 2023-2024/1556
