The Reserve Bank of India (RBI) has unveiled a significant reform in deposit insurance pricing, introducing a Risk-Based Premium (RBP) framework that is expected to enhance profitability for stronger banks while promoting more disciplined risk management across the banking sector. According to a recent report by ICRA, the move represents a structural shift from uniform pricing to a more nuanced, risk-sensitive system.
Announced on 6 February 2026, the new framework replaces the long-standing flat premium rate of 12 paise per ₹100 of assessable deposits (AD). In its place, a differential pricing model has been introduced, under which banks will be categorised based on their risk profiles. These risk scores will be determined using the internal rating methodology of the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the RBI.
Under the revised system, financially robust banks with lower risk exposure will benefit from reduced premium rates, whereas weaker institutions will face higher costs. This approach is designed not only to reward prudent financial management but also to incentivise weaker banks to strengthen their balance sheets and governance practices.
ICRA estimates that well-established banks with a strong track record and no history of insurance claims could see their Return on Assets (RoA) improve by nearly 4 basis points. At a broader level, banks accounting for approximately 80 per cent of total deposits are expected to benefit from discounted premium rates, resulting in an average RoA uplift of around 3 basis points across the sector.
A notable feature of the framework is the introduction of a “vintage incentive”, which rewards banks that have contributed to the Deposit Insurance Fund over extended periods without experiencing significant financial stress. The effective premium rate will be calculated using the following formula:
Effective Rate = Card Rate × (1 − Risk Model Incentive) × (1 − Vintage Incentive)
Key Features of the New Framework
| Component | Previous System | RBP Framework |
|---|---|---|
| Premium Structure | Flat rate (12 paise per ₹100 AD) | Risk-based differential pricing |
| Risk Assessment | Not applicable | Based on DICGC internal ratings |
| Minimum Premium | Fixed | As low as 8 paise per ₹100 AD |
| Maximum Discount | None | Up to 33.33% |
| Additional Incentive | None | Up to 25% (vintage-based) |
Under the Tier-1 model, which applies to scheduled commercial banks (excluding regional rural banks), Category A institutions could see their premium rates fall to as low as 8 paise per ₹100 of assessable deposits—representing a substantial discount. When combined with the vintage incentive, total premium reductions could be even more significant.
The report also highlights that any future increase in the deposit insurance limit—currently set at ₹5 lakh per depositor per institution—could lead to higher premium outflows for banks. However, stronger banks are likely to offset this impact through the benefits of reduced premium rates under the RBP system. In fact, the revised framework may pave the way for a future enhancement of the insurance ceiling.
The DICGC is set to implement the new framework from 1 April 2026, following approval from the RBI. As of 31 March 2025, India’s insured deposit to assessable deposit ratio (IDR) stood at 41.5 per cent, placing the country among the top ten globally in terms of deposit insurance coverage.
Overall, analysts believe that the RBP framework will strengthen the resilience of India’s banking system, align pricing with risk, and encourage a more stable and competitive financial environment.