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State Bank of India (SBI) and HDFC Bank, both domestic systemically important banks (D-SIBs), will be required to set aside higher capital for the loans they make with effect from April 1, 2025, in the backdrop of their balance sheets growing bigger.
The central bank has prescribed higher additional Common Equity Tier (CET) 1 requirement for SBI and HDFC Bank at 0.80 per cent (against 0.60 per cent up to March-end 2025) and 0.40 per cent (0.20 per cent), respectively, as a percentage of their Risk Weighted Assets (RWAs).
For ICICI Bank, the additional CET 1 requirement continues at 0.20 per cent.
“SBI, HDFC Bank and ICICI Bank continue to be identified as D-SIBs. While ICICI Bank continues to be in the same bucketing structure as last year, SBI and HDFC Bank move to higher buckets.
“The additional CET1 requirement will be in addition to the capital conservation buffer,” RBI said in a statement.
RBI’s latest D-SIB update is based on the data collected from banks as on March 31, 2023 and factoring in the increased systemic importance of HDFC Bank post the merger of erstwhile HDFC Limited into HDFC Bank on July 1, 2023.
Banking expert, V Viswanathan, said SBI and HDFC Bank may have to raise equity capital if the current run-rate in loan growth continues in FY26.
Within the CRAR (capital to risk-weighted assets ratio) of 11.5 per cent for banks, the CET-1 is at 5.5 per cent.
Beginning FY26, if SBI wants to make a loan, it will have to back it up with 12.3 per cent of the loan amount as capital against 12.1 per cent now, going by the D-SIB prescription.
If HDFC Bank wants to make a loan, it will have to back it up with 11.9 per cent of the loan amount as capital against 11.7 per cent now, going by the D-SIB prescription.
RBI said SIBs are perceived as banks that are ‘Too Big To Fail (TBTF)’. This perception of TBTF creates an expectation of government support for these banks at the time of distress. Due to this perception, these banks enjoy certain advantages in the funding markets.
However, the perceived expectation of government support amplifies risktaking, reduces market discipline, creates competitive distortions, and increases the probability of distress in the future.
“These considerations require that SIBs should be subjected to additional policy measures to deal with the systemic risks and moral hazard issues posed by them,” RBI said.
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