RBI for higher capital, intense bank monitoring

The Reserve Bank of India (RBI) will introduce higher capital requirements by 2016 for 'Domestic-Systemically Important Banks (D-SIBs) -- meaning too big to fail -- in a phased manner and they will be subjected to more intense supervision "in the form of higher frequency and higher intensity of off-and-on-site monitoring."

In a draft framework for dealing with D-SIBs released late last evening, RBI said it will determine a cut-off score beyond which banks will be considered D-SIBs. The apex bank has asked banks, other institutions and public to send comments to its draft proposals by December-end.

With the economy growing at its slowest rate in a decade, India's banking system is facing rising levels of stressed loans, with $100 billion, or about 10 percent of the total, categorised as bad or restructured.

Based on their systemic importance scores, banks will be plotted into different buckets. D-SIBs will be required to have additional Common Equity Tier 1 capital requirement ranging from 0.20 to 0.80 per cent of risk weighted assets. 

Also, D-SIBs will be subjected to differentiated supervisory requirements and higher intensity of supervision based on the risks they pose to the financial system. The computation of systemic importance scores will be carried out at yearly intervals and the names of the banks classified as D-SIBs will be disclosed in the month of August every year starting from 2015.

In this context, a leading brokerage house Motilal Oswal has estimated that RBI could classify at least 15 domestic banks, including ICICI Bank and Axis Bank as domestic systemically important banks (D-SIBs). 

In an email to its clients, Motilal Oswal said, "Banks with size of more than 2 per cent of GDP will be selected in the sample of banks." 

Though not as big, five top foreign banks could also be subject to similar requirements due to their high level of activity in the derivatives market, it added.