RBI to designated six bas as Systemically Important Banks (SIBs)

July 27, 2014

The Reserve Bank of India will designate at least six banks as Systemically Important Banks (SIBs), for the domestic financial market which will need to have higher capital than other banks to prevent the financial system from collapsing in the event of a crisis. The central bank would now work on identifying these banks which are too big to fail and would release a list of names in August 2015.
As per experts, the list may include State Bank of India, Punjab National Bank, Citibank, Standard Chartered Bank, ICICI Bank and HDFC Bank. Banks classified under SIB category will have to set aside more capital per loan than their peers. Size, interconnectedness, lack of readily available substitutes or financial institution infrastructure and complexity will determine the systemic importance of banks as determined by Basel global standards. But, as per RBI, in India, size would be given higher weightage than other factors.
Based on the category it is relegated, a bank will have has to set aside 0.2% to 0.8% of the loan as capital buffer. In simpler terms, if a bank was setting aside Rs 1 earlier, it would now have to set aside between Rs 1.20 and Rs 1.80. As per RBI, banks having a size beyond 2% of GDP will be selected in the sample. However banks whose size is less than 2% of GDP may also face rigorous norms. After the 2008 credit crisis, banking regulators across the globe are tightening capital norms for banks and other key financial institutions.