Mumbai : State Bank of India, ICICI Bank, HDFC Bank, Canara Bank, Punjab National Bank, Bank of India and Bank of Baroda are the seven banks that may qualify for being termed as systemically important under a proposed guideline that the Reserve Bank of India is expected to announce November-end.
Accoring to sources, the RBI is expected to consider business size as the primary criteria for identifying systemically important banks. Besides size, a bank’s interconnectedness, substitutability and complexity in operations are the other factors that will be considered for identifying a systemically important bank.
While no Indian bank may qualify as a globally-systemically important bank under the Basel framework, the growing size of Indian banks requires RBI to term some of them as significant domestic players, sources said.
“The higher regulatory requirements and tighter scrutiny on such banks is also aimed as a deterrent for smaller and medium-sized banks from attempting to turn into large banks. If they want to grow into a large bank, they have to be ready to meet these tighter RBI requirements,” a source said.
Over time, Union Bank of India, Axis Bank and Central Bank of India may also move to this group.
As per the Basel framework, RBI will have to introduce a higher loss absorption capacity and maybe even higher common equity Tier-I capital for these systemically important banks. However, the Basel framework encourages higher regulatory scrutiny and even leaves open the option for tighter norms for domestic-systemically important banks.