India will introduce a risk-based system for calculating deposit insurance premiums from 1 April, marking the most significant reform of the framework in more than six decades. The Reserve Bank of India (RBI) announced that banks’ contributions to the deposit insurance fund will no longer be determined by a uniform rate but instead linked to each lender’s risk profile.
The reform will be implemented by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the RBI. The move is intended to strengthen prudential discipline across the banking sector by rewarding financially robust institutions with lower premiums while requiring riskier lenders to contribute more.
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From Flat Rate to Risk Sensitivity
Since 1962, India has operated a flat-rate deposit insurance regime under which all banks paid the same premium, irrespective of their financial health. At present, banks contribute 12 paise per 100 rupees of assessable deposits. While administratively straightforward, the system did not distinguish between well-managed banks and those with weaker risk controls.
Under the new framework, premiums will be calibrated using a range of financial and supervisory indicators. These include capital adequacy, asset quality, earnings performance, liquidity levels and the estimated loss a bank’s failure could impose on the deposit insurance fund.
The revised structure introduces differentiated risk models depending on the category of institution:
| Feature | Previous System | New Risk-Based System |
|---|---|---|
| Basis of premium | Flat rate for all banks | Linked to individual risk profile |
| Current base rate (“card rate”) | 12 paise per ₹100 of assessable deposits | Remains reference rate |
| Risk adjustment cap | Not applicable | Up to 33.33% above or below card rate |
| Vintage incentive | None | Up to 25% reduction for long claim-free history |
| Models applied | Single system | Tier 1 and Tier 2 models |
Two-Tier Assessment Model
The RBI has introduced two separate assessment frameworks:
Tier 1 Model: Applicable to scheduled commercial banks, excluding regional rural banks.
Tier 2 Model: Applicable to regional rural banks and cooperative banks.
Premium adjustments will be capped to ensure stability and predictability. Risk-based incentives will be limited to 33.33% relative to the card rate. In addition, banks with a long history of contributing to the deposit insurance fund without generating significant claims may qualify for a “vintage” incentive of up to 25%. The final premium payable will reflect both risk-based adjustments and any applicable vintage benefit.
Exceptions and Transitional Provisions
Payments banks and local area banks will continue paying the standard card rate for now due to data constraints. Urban cooperative banks currently under supervisory or corrective action will only be brought under the revised framework once they exit such restrictions.
India currently provides deposit insurance coverage of up to ₹500,000 per depositor per bank, a limit revised upward in 2020 following high-profile banking failures. By linking premiums to measurable risk factors, the RBI aims to enhance market discipline, encourage prudent balance-sheet management and safeguard the long-term sustainability of the deposit insurance fund.
The reform aligns India more closely with global best practice, where risk-based deposit insurance systems are widely used to promote financial stability and reduce moral hazard within the banking sector.