HDFC, ICICI, SBI among RBI’s systemically important banks

State Bank of India (SBI), HDFC Bank and ICICI Bank continue to be identified as domestic systemically important banks, according to banking regulator Reserve Bank of India (RBI).

The additional Common Equity Tier 1 (CET1) requirement for these domestic systemically important banks will be in addition to the capital conservation buffer.

The Reserve Bank had issued the framework for dealing with Domestic Systemically Important Banks (D-SIBs) on July 22, 2014, which was subsequently updated on December 28, 2023.

The D-SIB framework requires the Reserve Bank to disclose the names of banks designated as D-SIBs starting from 2015 and place these banks in appropriate 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. 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, i.e., additional CET1 buffer prescribed by the home regulator (amount) multiplied by India RWA as per consolidated global Group books divided by total consolidated global Group RWA.

The Reserve Bank had announced SBI and ICICI Bank as D-SIBs in 2015 and 2016 while HDFC Bank was classified as D-SIB in 2017 along with SBI and ICICI Bank. The current update is based on the data collected from banks as on March 31, 2024.

Retail loan growth in India has moderated sharply since the Reserve Bank of India introduced measures to keep the expansion of the segment in check. The slowdown is credit positive for lenders as it will help curb increase in asset risks from retail loans, according to Moody’s. Yet underlying consumer demand for loans will remain strong amid India's robust economic growth, and this will continue to create opportunities for lenders, the ratings agency said in October.

Large banks stand to benefit the most from retail loan demand. Access to low-cost funding and their extensive branch networks allow large banks to price their loans more competitively for borrowers with better credit quality than their smaller peers and non-bank financial companies (NBFCs), which will help them preserve asset quality while capitalising on retail loan demand. Smaller banks need to pay more for deposits than large ones, while NBFCs' funding sources are market borrowing and bank loans, which are costlier than deposits.