Rapid Fire
Risk-Based Deposit Insurance Framework for Banks
- 22 Dec 2025
- 2 min read
The Reserve Bank of India (RBI) has approved a risk-based deposit insurance premium framework, shifting from the long-standing flat-rate system to a soundness-linked model, which will be effective from the next financial year (FY 2026-27).
- Policy Shift: Replaces the decades-old flat-rate premium system with a Risk-Based Premium (RBP) model, linking premiums to a bank’s financial soundness and risk profile.
- Existing Arrangement: Since 1962, the Deposit Insurance and Credit Guarantee Corporation has operated a flat-rate premium-based deposit insurance scheme, with banks currently charged 12 paise per Rs 100 of assessable deposits.
- Rationale: The existing flat-rate premium system charges all banks the same insurance rate, irrespective of their financial soundness, leading to safer banks subsidising riskier ones.
- A risk-based premium model aligns insurance costs with a bank’s risk profile, creating incentives for better governance, capital adequacy, and prudent risk management.
- Expected Impact: It strengthens financial stability by discouraging excessive risk-taking and improving market discipline without reducing depositor protection.
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