Additional common equity requirement has to be applied to Systemically Important Banks
The Reserve Bank of India has announced the designation of State Bank of India and ICICI Bank as Domestic Systemically Important Banks (D-SIBs).The Reserve Bank had issued the Framework for dealing with Domestic Systemically Important Banks (D-SIBs) on 22 July 2014. The D-SIB Framework requires the Reserve Bank to disclose the names of banks designated as D-SIBs every year in August starting from August 2015.
The Framework also requires that D-SIBs may be placed in four 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 (State Bank of India 0.6% and ICICI Bank 0.2%), as mentioned in the D-SIB Framework.
The D-SIB Framework specifies a two-step process of identification of D-SIBs. In the first step, the sample of banks to be assessed for systemic importance has to be decided. The selection of banks in the sample for computation of SIS is based on analysis of their size as a percentage of annual GDP.
The additional Common Equity Tier 1 (CET1) requirements applicable to D-SIBs will be applicable from 01 April 2016 in a phased manner and would become fully effective from 01 April 2019. The additional CET1 requirement will be in addition to the capital conservation buffer.
Further, as mentioned in the D-SIB Framework, 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.
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