From April 1, 2026, banks will no longer pay a uniform deposit insurance premium. Instead, a risk-based deposit insurance framework will be introduced, linking insurance costs to a bank’s financial health. Announced by the Deposit Insurance and Credit Guarantee Corporation (DICGC), the reform aims to reward safer banks, encourage better risk management, and strengthen confidence in the banking system.
What Is the Risk-Based Deposit Insurance Framework
- Under the new framework, banks will pay deposit insurance premiums based on their risk profile instead of a single flat rate.
- Currently, all banks pay 12 paise per ₹100 of deposits, irrespective of risk.
- From April 2026, banks will be classified into four risk categories A, B, C and D. Safer banks will pay lower premiums, while riskier banks will pay more.
- The move aligns insurance pricing with actual risk, improving fairness and financial discipline.
Premium Rates Under the New System
- Banks in Category A (lowest risk) will pay 8 paise per ₹100 deposit per year.
- Category B banks will pay 10 paise, Category C 11 paise, and Category D (highest risk) will continue to pay 12 paise.
- This graded structure incentivizes banks to strengthen balance sheets, asset quality, and governance to reduce insurance costs over time.
How Banks Will Be Assessed for Risk
- According to the Reserve Bank of India, there will be two risk assessment models.
- The Tier 1 Model applies to Scheduled Commercial Banks (excluding RRBs) and uses supervisory ratings, CAMELS parameters, and potential losses to the Deposit Insurance Fund.
- The Tier 2 Model applies to Regional Rural Banks and cooperative banks, focusing on quantitative indicators and loss potential.
Vintage Incentive and Rating Overrides
- The framework introduces a vintage benefit, rewarding banks that have contributed to the Deposit Insurance Fund for long periods without distress or claims.
- Banks can receive a discount of up to 25% on premiums.
- Additionally, a rating override policy allows DICGC to revise a bank’s risk category if adverse developments emerge after initial assessment, ensuring timely correction.
Banks Kept Outside the RBP Framework
- Local Area Banks and Payments Banks will continue to pay the flat rate of 12 paise, as data limitations prevent accurate risk modelling.
- Together, they account for less than 1% of total premiums collected.
What Is DICGC
DICGC is a wholly owned subsidiary of RBI that provides deposit insurance cover to bank depositors in India, currently up to ₹5 lakh per depositor.
Question
Q. Which institution administers deposit insurance in India?
A. SEBI
B. NABARD
C. DICGC
D. IRDAI