Tides of 1.09.2015
1. The
RBI has designated State Bank of India and ICICI Bank as Domestic Systemically
Important Banks (D-SIBs), which will put them under tougher monitoring to avoid
any collapse. SIBs are perceived as banks that are ‘Too Big To Fail’. The RBI
said the two banks have been selected due to their size, cross-jurisdictional
activities, complexity, lack of substitutability and interconnectedness. SBI
alone accounts for a fifth of the banking business
in India. “The disorderly failure of these banks has the potential to
cause significant disruption to the essential services they provide to the
banking system, and in turn, to the overall economic activity. Therefore, the
continued functioning of SIBs is critical for the uninterrupted availability of
essential banking services to the real economy,” RBI said while announcing the
framework for dealing with D-SIBs.Following their designation as D-SIBs, SBI
and ICICI Bank must meet additional Common Equity Tier 1 (CET1) requirements
from April 1, 2016, in a phased manner. The CET1 requirements will be fully
effective from April 1, 2019. This means the banks will have to set aside more
funds at a time when banks are battling a huge bad debt burden.The additional
requirement as a percentage of Risk Weighted Assets (or loans) for SBI and
ICICI Bank have been set at 0.60 per cent and 0.20 per cent, respectively. This
will be in addition to the extra capital buffers already in place under
Basel-III guidelines.Both banks said their capital base was higher than
mandated. Arundhati Bhattacharya, Chairman, SBI, said, “SBI currently has a
much higher level of Tier-I at 9.62 percent as opposed to 7 percent required
under the current guidelines. We will adhere to the additional requirements as
and when they become applicable.”Chanda Kochhar, MD and CEO, ICICI Bank, said,
“ICICI Bank’s capital adequacy is well in excess of regulatory requirements and
the Bank is not expected to require fresh equity capital for the next couple of
years."If a foreign bank, having a presence in India, has been notified as
Global Systemically Important Bank (G-SIB), it has to maintain the additional
capital surcharge in India, proportionate to its Risk-Weighted Assets in India.
HSBC, JP Morgan Chase, Barclays and BNP Paribas are among the G-SIBs in India
as per the Financial Stability Board’s list of November 2014.
2. Amid
the slow credit offtake and lowering cost of funds in the banking system, HDFC
Bank — the country’s second-largest private bank — slashed its base rate, or
minimum lending rate, by a sharp 35 basis points to 9.35 per cent, effective
September 1.This could set off a rate cut war among lenders to retain
customers. HDFC Bank’s new base rate will be the lowest in the banking
industry.Among public sector banks, Canara Bank also cut its base rate by 10
bps to 9.9%, effective September 3.
3. At
present, the base rate of country’s largest lender State Bank of India and
ICICI Bank, the country’s largest private bank, are at 9.70 per cent each.
4. Backed
by strong macro fundamentals, the Finance Ministry on Monday pitched for a
rating upgrade with global agency Standard & Poor’s (S&P). Currently,
India has a rating of ‘BBB -’ with a stable outlook. Chief Economic Advisor
Arvind Subramanian made a presentation to the team from the rating agency,
comprising Paul Gruenwald, Managing Director & Chief Economist (Asia
Pacific), and Kryan Curry Director (Sovereign & International Ratings).
According to sources, during the presentation, the agency was told that
inflation, the fiscal deficit, and current account deficit (CAD) are under
control. “India has strong medium-term growth potential and therefore is
exceptionally placed globally and reforms are persistent, cumulative, and
creating an impact. Growth in the current fiscal will be better than fiscal
2015,” the CEA said in the presentation.
5. JP
Morgan Chase, the largest bank in the US, has an asset size of about $2,500
billion, which is nearly six times that of SBI’s. The lending operations of
Indian banks are also much lower than that of their global peers.
6. Industrial
and Commercial Bank of China, has a loan book that is nearly seven times that
of SBI’s.
