RBI’s D-SIBs: Nature and Criteria

RBI’s D-SIBs: Nature and Criteria

Question: Recently, RBI has declared SBI and ICICI as D-SIBs in line with the framework released earlier. What are Domestic Systemically Important Banks? Discuss the criteria to identify a D-SIB.

RBI has declared SBI and ICICI as D-SIBs in line with the framework released by RBI on July 22nd 2014

- Banks have been allocated as D-SIBs in association with the methodology provided in the framework

- These banks have been placed in a prerequisite bucket structure under the D-SIB framework

- Each bucket matches higher loss absorbency requirements they must hold from January 2016

About the Framework

- The framework as issued as under the need of October 2010 recommendations of the Financial Stability Board after the 2008 financial meltdown

- FSB called member countries to put the framework for reducing risks concerning systemically important financial institutions under their jurisdiction

- D-SIBs have been placed in 4 buckets based on systemic Importance scores in ascending order and additional CET1 capital requirement from 0.20 to 0.80 of RWA

- Additional CET1 requirements for D-SIBS will take effect from April 2016 and be fully effective w.e.f April 2019

- Additional CET1 requirement will be in addition to capital conservation buffer

- In case a bank with presence in India is also a G-SIB, it has to maintain additional CET1 capital surcharge as applicable under G-SIB proportionate to RWAs in India

Criteria for Identifying D-SIB

- To identify D-SIB, a framework specifies a two step process of identification

- Step 1: Sample banks have be assessed for systemic importance, SIS computation is based on analysis of size as percentage of annual GDP

- RBI has adopted an assessment method based on Basel Committee on Banking Supervision method for identifying G-SIBs with suitable modifications in the domestic context where relevant

Facts and Stats

Indicators used for assessment are:

- Size

- Interconnectedness

- Substitutability

- Complexity

- SBI has been placed under Bucket 3 with CET1 and RWA at 0.6%

- ICICI Bank has been placed in Bucket 1 with additional CET1 requirements as percentage of RWAs pegged at 0.2%