Reserve Bank of India announces plan to list systemically important banks

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Wednesday, July 23, 2014

The Reserve Bank of India (RBI) posted a press release on its website yesterday stating it will identify up to six banks as domestic systemically important banks (D-SIB), which would be equivalent to the too big to fail banks of other nations.

Seal of the Reserve Bank of India.
Image: Government of India.

RBI is to reveal the names of the banks every year in August, starting from 2015. The press release also said RBI had identified four to six banks to be under D-SIB category according to data compiled through March 2013.

The primary criterion to be used for selection of the banks is size — banks with size larger than 2% of the GDP (Gross Domestic Product) as defined by Basel regulations. Other criteria to be used are interconnectedness, how easily the bank can be substituted for, and its infrastructure and complexity. RBI also said four subcategories of D-SIBs will be created, each with different Tier 1 capital requirements, which will be higher compared to other banks. These four categories will have Tier 1 capital requirements ranging from 0.20% to 0.80% of their risk-weighted assets.

Ananda Bhoumik, senior director of India Ratings, a unit of Fitch Ratings, said the new regulations will not hinder the growth of the banks, as they already maintain capital above the expected regulation levels. Banks considered by analysts likely to be classified as D-SIBS include State Bank of India, Punjab National Bank, Citibank, Standard Chartered Bank, ICICI Bank, and HDFC Bank.

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