RBI Approved Risk Based Deposit Insurance Premium Framework For Banks

Introduction

The Central Board of Directors of the Reserve Bank of India approved risk based deposit insurance premium framework for banks in its 620^th meeting held on December 19, 2025 at Hyderabad, shifting from long standing uniform premium system to soundness-linked model, which will be effective from financial year 2026-27. “While the existing system is simple to understand and administer, it does not differentiate between banks based on their soundness. It is, therefore, proposed to introduce a Risk-Based Premium model,” says RBI. The approval builds on a proposal the RBI floated in October 2025, aiming to modernise how deposit insurance premiums are calculated and paid by banks. 

Mooted as an alternative to the existing flat rate premium-based deposit insurance scheme, the framework is expected to help banks that are more financially stable to save significantly on the premium paid.

Existing Arrangement

Under the existing system, all banks pay the same deposit insurance premium to Deposit Insurance and Credit Guarantee Corporation (DICGC), irrespective of their financial viability, position and risk profile. The DICGC has been operating the flat rate premium-based deposit insurance scheme since 1962. Under the scheme, the banks charge a premium of 12 paise per ₹100 of assessable deposits.

The DICGC is a wholly owned subsidiary of the RBI. It was established in 1961 under the DICGC Act, 1961. Its main role is to protect bank depositors by providing insurance on their deposits in case a bank fails.

New Framework

A risk-based deposit premium framework highlights that banks will be assessed based on their financial viability, risk mitigation practices, quality of their asset, and overall stability. Based on this assessment, deposit insurance contributions or regulatory treatment can be aligned with the level of risk a bank poses to the system.

Premium Calculation: Instead of a flat rate, premiums will be determined using a differentiated approach. Banks with stronger financial health measured by metrics like capital adequacy ratio (CAR), asset quality (e.g., low non-performing assets or NPAs), management efficiency, earnings, liquidity, and sensitivity to market risks will pay lower premiums. Riskier banks will pay higher premiums, up to the current flat rate of 0.12% (12 paise per ₹100) annually on total assessable deposits as a ceiling. This difference in premium creates incentives for better risk management and financial discipline in the banking system.

The new framework does not affect depositors directly and the insurance protection available to bank depositors remains capped at Rs. 5 lakh per person per bank, covering money kept in savings, current, fixed, and recurring deposit accounts with insured lenders.

Conclusion and Way Forward

This reform reflects the RBI’s ongoing shift toward a more dynamic, forward-looking, and risk-sensitive regulatory framework, aligned with the realities of India’s rapidly expanding economy.

For depositors, the reform reinforces confidence in the safety of their savings. While deposit insurance continues to provide a safety net, stronger regulatory discipline is expected to result in healthier and more stable banks, thereby reducing the probability of bank distress in the first place.

For banks, the changes serve as a clear signal to prioritise sound risk management, adequate capital buffers, and sustainable growth strategies. Banks are encouraged to strengthen internal governance and improve asset quality.