The Reserve Bank of India (RBI) is set to revolutionize the banking sector by adopting a risk-based deposit insurance premium for banks, moving away from the existing flat-rate regime. This significant shift, expected to be effective from the next financial year, aims to incentivize sound financial management and foster healthier banking practices.
Currently, all banks, regardless of their financial health, pay a uniform premium of 12 paise for every ₹100 of deposits to the Deposit Insurance and Credit Guarantee Corporation (DICGC). The DICGC, a subsidiary of the RBI, has been operating the deposit insurance scheme since 1962. This flat-rate system doesn't distinguish between financially robust banks and riskier ones.
Under the new risk-based premium framework, the premium a bank pays will be directly linked to its risk profile. Safer, well-managed, and well-capitalized banks will benefit from lower insurance premiums, while banks with weaker balance sheets or riskier profiles may continue paying at the current ceiling rate. The current flat rate of 12 paise per ₹100 will serve as a ceiling, ensuring that no bank will pay a higher rate than the current one.
RBI Governor Sanjay Malhotra stated that the goal is to "incentivize sound risk management by banks and reduce premium to be paid by better rated banks". This move is expected to increase banks' risk management and reduce premiums for stronger lenders. The RBI believes that this shift will strengthen overall financial stability.
The proposal has been welcomed by the banking industry. CS Shetty, chairman of the State Bank of India, noted that paying insurance premiums has become the largest overhead for any bank today and that this move is an important step in distinguishing between banks.
However, some experts have cautioned against potential challenges. One concern is that a complex model "could place a disproportionate compliance and cost burden on small banks," potentially leading to inaccurate risk ratings or operational difficulties. There are also concerns that visibly higher premiums for banks labeled "higher risk" could be interpreted as a warning sign by depositors, potentially leading to fund outflows.
The shift to a risk-based premium model aligns India's deposit insurance scheme with global standards. Many countries have already adopted differential premium systems to incentivize sound risk management.
What it Means for Depositors
For depositors, the core protection for their savings remains unchanged. The deposit insurance cover of ₹5 lakh per depositor, per bank, which includes both principal and interest, is not affected by this new premium policy. As of March 2025, 97.6% of all deposit accounts in India were fully protected under this coverage. The insurance covers savings accounts, current accounts, fixed deposits, and recurring deposits.
Looking Ahead
The RBI is expected to issue detailed guidelines shortly, and the new premium structure will become effective from the next financial year. The implementation of this measure will play a crucial role in ensuring that the financial system remains robust, resilient, and responsive to the needs of a dynamic economy.
