SBI, ICICI, HDFC Bank continue to be systemically important banks

Lenders regarded as too big to fail; classification based on data they gave in March 2022

State Bank of India (SBI) and privately owned ICICI Bank and HDFC Bank continue to be Domestic Systemically Important Banks (D-SIBs) or institutions that are too big to fail, said the Reserve Bank of India (RBI) on Monday.

It’s the structure followed in 2021: ICICI Bank and HDFC Bank fall under bucket 1 and SBI falls in bucket 3. The classification is based on data collected from the banks as on March 31, 2022.

Under bucket 1, banks require 0.2 per cent of additional common equity Tier 1 (CET1) capital as a percentage of risk weighted assets (RWAs). Banks under bucket 3 require 0.6 per cent of CET1 capital as a percentage of RWAs.

The additional CET1 requirement will be in addition to the capital conservation buffer.

Systemically important banks are regarded as too big to fail, creating the belief that the government will support them in distress.

In 2015 and 2016, RBI had classified SBI and ICICI Bank as D-SIBs. Further, 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 RBI guidelines say 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 common equity Tier 1 capital surcharge in India as applicable to it as a G-SIB, proportionate to its RWAs in India.