Skip to main content

Systematically Important Banks (SIBs)

Some banks are identified as systematically important and are subjected to higher capital requirements. When are banks termed as systematically important? What are the additional capital requirements for such banks? And which are the systematically important banks in India?

What are Systematically Important Banks (SIBs)?

Systematically Important Banks (SIBs) are perceived as banks that are ‘Too Big To Fail (TBTF)’. 

Why additional policy measures are required for SIBs?

The perception of TBTF creates an expectation of government support for these banks at the time of distress. Due to this perception, these banks enjoy certain advantages in the funding markets. However, the perceived expectation of government support amplifies risk-taking, reduces market discipline, creates competitive distortions, and increases the probability of distress in the future. These considerations require that SIBs should be subjected to additional policy measures to deal with the systemic risks and moral hazard issues posed by them.

When was SIB framework introduced?

Basel Committee on Banking Supervision (BCBS) came out with a framework in November 2011 (since up-dated in July 2013) for identifying the Global Systemically Important Banks (G-SIBs) and the magnitude of additional loss absorbency capital requirements applicable to these G-SIBs.

The framework was extended to Domestic Systemically Important Banks (D-SIBs) in October 2012.

BCBS methodology for identification of G-SIB vs RBI methodology for identification of D-SIB 

 

BCBS G-SIB identification methodologyRBI D-SIB identification methodology
Sample of banks75 largest global banks based on financial year end Basel III leverage ratio exposure measure. National supervisors have the discretion to add any bank in the sample apart from 75 largest banks.Banks having size (Basel III leverage ratio exposure measure) as a percentage of GDP equal to or more than 2%. Additionally, 5 largest foreign banks, based on their size, are also be added in the sample.
IndicatorsFive broad indicators –
1. Cross jurisdictional activity
2. Size
3. Interconnectedness
4. Substitutability
5. Complexity		Four broad indicators as mentioned in BCBS’s framework for D-SIBs are used –
1. Size
2. Interconnectedness
3. Substitutability
4. Complexity
Indicator weightsAll indicators given equal weight (20%) with a cap to substitutability category weight.Size given a weight of 40% and other three indicators given a weight of 20% each.
Sub-indicatorsThree sub-indicators for Complexity indicator –
1. Notional amount of OTC derivatives
2. Level 3 assets and
3. Trading and Available For Sales Securities		Level 3 assets for complexity indicator dropped and instead cross jurisdictional liabilities added.
Designating banks as SIBsBased on a range of indicators, a composite score of systemic importance for each bank in the sample is computed. The banks having systemic importance above a threshold are designated as G-SIBs.Based on a range of indicators, a composite score of systemic importance for each bank in the sample is computed. The banks having systemic importance above a threshold are designated as D-SIBs.

How are SIBs segregated?

  • SIBs are segregated into different buckets based on their systemic importance scores, and subject to loss absorbency capital surcharge in a graded manner depending on the buckets, in which they are placed. 
  • SIB in lower bucket attract lower capital charge and a SIB in higher bucket attract higher capital charge.

What is bucket-wise additional capital requirements for SIBs?

BucketAdditional CET1 requirement (as a percentage of risk weighted assets)

 

D-SIBG-SIB
5 (Empty)1.00%3.5%
40.80%2.5%
30.60%2%
20.40%1.5%
10.20%1%

  • The additional CET1 (Common Equity Tier 1) requirement is in addition to the capital conservation buffer.
  • The 5th bucket is kept empty, to take care of banks in case their systemic importance score increases in future beyond the 4th bucket. 
  • In the event of the 5th bucket getting populated, an additional empty (6th) bucket would be added.
  • An empty bucket with higher CET1 requirement incentivizes SIBs with higher scores not to increase their systemic importance in future.

When was D-SIBs framework implemented in India?

  • RBI had issued the framework for dealing with D-SIBs on July 22, 2014. 
  • As required under D-SIB framework, RBI has been disclosing the names of banks designated as D-SIBs starting from 2015. 
  • The additional Common Equity Tier 1 (CET1) requirement for D-SIBs was phased-in from April 01, 2016 and became fully effective from April 01, 2019. 
  • The D-SIBs framework was reviewed and revised on December 28, 2023.

What were the major revisions in the D-SIBs framework?

Based on the review of D-SIBs framework in December 2023, while there was no change in the selected indicators or their respective weights, some of the revisions to the methodology were as follows –

  • The data requirement under ‘Payments’ sub-indicator of ‘Substitutability’ indicator was revised from “Payments made in Indian Rupee (INR) using Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) systems” to –
    • Total value of Digital Payments made in INR (75% weightage)
    • Total volume of Digital Payments made in INR (25% weightage)
  • The computation of systemic importance scores, based on the end-March data of all the banks in the sample, would be performed annually in the months of August-October, and names of the banks classified as D-SIBs would be disclosed in the month of November every year. Accordingly, banks would be required to be in readiness to submit the required data to RBI by August 15 of each year.

Which are D-SIBs in India?

(Updated on November 13, 2024)

RBI has released the 2024 list of Domestic Systemically Important Banks (D-SIBs) based on the data collected from banks as on March 31, 2024. The list is as follows –

BucketBanksAdditional Common Equity Tier 1 requirement as a percentage of Risk Weighted Assets (RWAs)
5-1%
4State Bank of India0.80%
3-0.60%
2HDFC Bank0.40%
1
ICICI Bank
0.20%

RBI had announced SBI and ICICI Bank as D-SIBs in 2015 and 2016. 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.

SBI and HDFC Bank had moved to higher buckets in 2023 – SBI shifted from bucket 3 to bucket 4 and HDFC Bank shifted from bucket 1 to bucket 2. For SBI and HDFC Bank, the higher CET1 requirements on account of the bucket increase will be effective from April 1, 2025. Hence, up to March 31, 2025, the additional CET1 applicable to SBI and HDFC Bank will be 0.60% and 0.20% respectively.


References

Reserve Bank of India. (2014, July 22). 'Framework for Dealing with Domestic Systemically Important Banks (D-SIBs)'. Retrieved from https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=2861

Reserve Bank of India. (2014, July 22). 'RBI releases Framework for dealing with Domestic Systemically Important Banks (D-SIBs)'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=31680

Reserve Bank of India. (2023, December 28). 'Domestic Systemically Important Bank (D-SIB) Framework - Review of the Assessment Methodology'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=57015

Reserve Bank of India. (2023, December 28). 'Framework for Dealing with Domestic Systemically Important Banks (D-SIBs) - 2023'. Retrieved from https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=4362#F1

Reserve Bank of India. (2023, January 02). 'RBI releases 2022 list of Domestic Systemically Important Banks (D-SIBs)'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54979

Reserve Bank of India. (2023, December 28). 'RBI releases 2023 list of Domestic Systemically Important Banks (D-SIBs)'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=57006

Reserve Bank of India. (2024, November 13). 'RBI releases 2024 list of Domestic Systemically Important Banks (D-SIBs)'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=59088


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Reserve Bank of India Act, 1934 – Part-II – Section 17 to 19

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the second article in the series.  Section 17 – Business which the Bank may transact RBI shall be authorized to carry on and transact the several kinds of business hereinafter specified, namely – 17(1) – Accept deposit without interest from the Central / State Government, local authorities, banks and any other persons. 17(1A) – Accept deposit, repayable with interest, from banks or any other person under the Standing Deposit Facility Scheme, as approved by the Central Board, for the purposes of liquidity management.   Bills of Exchange (B/E) & Promissory Note (PN) Bearing 2 or more good signatures, one of which shall be of B/E & PN arising out of Maturing within 17(2)(a) Purchase, sale and rediscou...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-I – Preamble and Section 1 to 13

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the first article in the series. Preamble of the Act RBI to – Regulate the issue of bank notes. Keep reserves for monetary stability in India. Operate currency and credit system of the country to its advantage. The primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth. Chapter I – Preliminary Section 1 – Short title, extent and commencement 1(1) – This Act may be called the Reserve Bank of India Act, 1934. 1(2) – The Act extends to whole of India. Chapter II - Incorporation, Capital, Management and Business Section 3 – Establishment and incorporation of Reserve Bank 3(1) – RBI to take over management of the currency from the Central Government. 3(2) – RBI to have perpetual succession, common seal, and shall by...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-III – Section 20 to 40

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the third article in the series.  Chapter III - Central Banking Functions Section 20 – Obligation of the Bank to transact Government business RBI shall undertake – To accept monies for account of the Central Government and to make payments up to the amount standing to the credit of its account, and to carry out its exchange, remittance and other banking operations. Management of the public debt of the Union. Section 21 – Bank to have the right to transact Government business in India The Central Government shall entrust RBI with – All its money, remittance, exchange and banking transactions in India, and shall deposit free of interest all its cash balances with RBI. The Central Government may carry on money transactions at places where RBI has no branches or agencies and m...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-IV – Section 42 to 45

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the fourth article in the series.  Section 42 – Cash reserves of scheduled banks to be kept with the Bank 42(1) – Every bank included in the Second Schedule shall maintain with RBI an average daily balance at a percent (notified by RBI) of its total demand and time liabilities in India. 42(1A) – RBI may direct every scheduled bank to maintain with RBI, in addition to the balance prescribed under Section 42(1), an additional average daily balance at a rate (specified by RBI). 42(1C) – RBI may specify any transaction or class of transactions to be regarded as liability in India of a scheduled bank. If any question arises as to whether any transaction or class of transactions shall be regarded as liability in India of a schedule bank, the decision of RBI thereon shall be fina...
Post a Comment
Read more

Reserve Bank of India Act, 1934 – Part-V – Section 45B to 45JA

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the fifth article in the series.  Chapter IIIA - Collection and Furnishing of Credit Information Section 45B – Power of Bank to collect credit information RBI may collect credit information from banking companies and furnish it to any banking company in accordance with section 45D. Section 45C – Power to call for returns containing credit information RBI may direct any banking company to submit statements relating to credit information. Section 45D – Procedure for furnishing credit information to banking companies A banking company may apply to RBI to provide credit information. RBI shall furnish the requested credit information without disclosing the names of the banking companies which have submitted the information. RBI may levy fees of up to Rs.25 for furnishing credit...
Post a Comment
Read more