HDFC Bank Is Now A Systemically Important Bank, Says RBI

Private sector lender HDFC Bank Ltd. was identified as a domestic systemically important bank by the Reserve Bank of India on Monday, as it joined the league of large banks such as State Bank of India and ICICI Bank Ltd.

HDFC Bank and ICICI Bank, two of the largest private banks in India, have been categorised under bucket 1 of the DSIB classification. SBI sits in bucket 3, as it is larger than both these banks.

Over the last couple of years, HDFC Bank has overtaken ICICI Bank in terms of balance sheet size and market capitalisation. As on June 30, HDFC Bank’s total advances were at around Rs 5.8 lakh crore, as compared with ICICI Bank’s Rs 4.64 lakh crore. HDFC Bank’s market capitalisation at the end of financial year 2016-17 stood at Rs 3.7 lakh crore, as compared with 1.6 lakh crore of ICICI Bank.

The central bank had first announced a framework for such banks in July 2014, following which, it announced SBI and ICICI Bank as DSIBs in 2015.

The concept of DSIB is similar to the ‘too big to fail’ category of banks which are large and interconnected businesses and may have a calamitous effect on the economy if they were to fail. The reason behind creating such a category was to insulate the impact of a failure of such large banking institutions.

Under the RBI’s norms for DSIBs, banks are required to set aside additional common equity tier-1 (CET1) capital in a phased manner between April 1, 2016 to March 31, 2019.

The additional capital requirement on HDFC Bank will be applicable starting April 1, 2018, according to the statement that the central bank released on its website on Monday.

Under the first bucket, banks have to maintain 0.15 percent additional CET1 starting April 1, 2018. Starting April 2019, these banks will have to maintain additional CET1 capital of 0.2 percent. For SBI, which is under bucket 3, the capital requirement is higher at 0.45 percent starting April 1, 2018 and 0.6 percent a year after.