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RBI retains ‘too big to fail’ tag for SBI, ICICI Bank

 PTI |  2016-08-26 23:42:05.0  |  Mumbai

The RBI on Thursday retained 'too big to fail' tag for the state-owned SBI and private lender ICICI Bank for the second year in a row, calling them systemically important banks for 2016 requiring higher level of supervision.

In 2015, these two were identified for the first time as the domestic systemically important banks. Systemically important banks are subjected to higher levels of supervision to prevent disruption to financial services in the event of any failure. 

Based on the Domestic Systemically Important Banks (D-SIBs) Framework and data collected from lenders as on March 31, 2016, these two have again been declared D-SIBs in 2016. "RBI has identified State Bank of India (SBI) and ICICI Bank as Domestic Systemically Important Banks (D-SIBs) in 2016 and has retained their bucketing structure as it was last year," the central bank said in a statement.

The additional Common Equity Tier 1 (CET1) requirement for D-SIBs has to be done in phases. For these two, it has already been phased in from April 1, 2016, and will become fully effective April 1, 2019.

"The additional CET1 requirement will be in addition to the capital conservation buffer," RBI added. Additional CET 1 requirement as a percentage of risk weighted assets (RWAs) for SBI and ICICI Bank stands at 0.6 pr cent and 0.2 per cent, respectively.

As per the framework, RBI will determine a cut-off score to determine which banks make the cut. Banks are plotted into four different buckets and will be required to have additional Common Equity Tier 1 (CET1) capital requirement ranging from 0.2 per cent to 0.8 per cent of risk weighted assets, depending on the bucket they are plotted into. The framework requires RBI to disclose the names of banks designated as D-SIBs every year in August.

Systemically important banks are perceived as ones that are 'too big to fail (TBTF)'. This perception of TBTF creates expectation of government support for them in distress. These banks also enjoy certain advantages in funding markets.

However, the perceived expectation of government support amplifies risk-taking, reduces market discipline, creates competitive distortions and increases probability of distress in future. 

Food company starts dishes in Raghuram Rajan’s honour
A Bengaluru-based food company has introduced two offbeat dishes in its menu to celebrate the legacy of outgoing RBI Governor Raghuram Rajan, who has left his own distinct mark on the central bank. Zzungry said it had introduced limited edition of “Ulundu kozhukattai” and “Kova kozhukattai” that are inspired from the cuisines of two states in the country that hold great relevance in the life of Rajan. 

The dishes priced at Rs100 and Rs150 will be available in the menu from August 26 to September 2 just before Rajan’s sign off from his tenure as the chief of the RBI, it said. His current three-year term ends on September 4. “This is a unique gesture from Zzungry to appreciate the commendable work done by Dr Rajan. He has touched the lives of commoners and entrepreneurs like us in a positive way,” said Zzungry Co- Founder Ashish Kalya. Ulundu kozhukattai is a delectable savoury rice flour dumpling stuffed with medium spicy mixture of urad dal, tempered with curry leaves and spices, steamed and served with chutney.

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