In order to avoid 2008 crisis kind of situation, the Reserve Bank of India (RBI) will soon announce a separate category of domestic systemically important banks (D-SIBs), which will have to set aside more capital to cover risks and be subject to more intense regulations by the banking regulator. It will mainly cover banks having multiple financial services like insurance, broking and asset management and the list of banks falling under this category will be released by August 2015.
According to the draft guidelines floated for D-SIBs, these banks, which will be selected based on a pre-determined formula, will be required to maintain higher core tier-I capital ranging from 0.20 to 0.80% of their risk weighted assets.
Further, this classification system will be based upon the BCBS (Basel Committee for Banking Supervision) framework for global systematically important banks (G-SIBs) and will involve computation of composite systemic importance score for banks, which will be arrived at post-considering a bank’s size, interconnectedness, substitutability and complexity among other things. Based on their systemic importance scores, banks will be plotted into different buckets. Meanwhile, the higher capital requirements will be applicable in phased manner from Apr 1, 2016 and will become fully effective from Apr 1, 2019. D-SIBs will also be subjected to differentiated supervisory requirements and higher intensity of supervision based on the risks they pose to the financial system. Lastly, the RBI has invited comments on the draft guidelines till December 31.
According to the draft guidelines floated for D-SIBs, these banks, which will be selected based on a pre-determined formula, will be required to maintain higher core tier-I capital ranging from 0.20 to 0.80% of their risk weighted assets.
Further, this classification system will be based upon the BCBS (Basel Committee for Banking Supervision) framework for global systematically important banks (G-SIBs) and will involve computation of composite systemic importance score for banks, which will be arrived at post-considering a bank’s size, interconnectedness, substitutability and complexity among other things. Based on their systemic importance scores, banks will be plotted into different buckets. Meanwhile, the higher capital requirements will be applicable in phased manner from Apr 1, 2016 and will become fully effective from Apr 1, 2019. D-SIBs will also be subjected to differentiated supervisory requirements and higher intensity of supervision based on the risks they pose to the financial system. Lastly, the RBI has invited comments on the draft guidelines till December 31.
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