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RBI's Risk-Based Deposit Insurance to Boost Profits for Stronger Banks

The Reserve Bank of India has introduced a new Risk-based Premium Framework for deposit insurance, replacing a flat rate with a differential pricing structure based on a bank's risk profile. Stronger banks with better risk scores and longer operational histories will pay lower premiums, potentially improving their Return on Assets by nearly 4 basis points. The framework includes a "vintage incentive" to reward banks with long, stable contributions to the Deposit Insurance Fund. ICRA's report suggests this new structure could pave the way for a future increase in the deposit insurance limit from the current Rs. 5 lakh per depositor.

Key Points: RBI's New Risk-Based Deposit Insurance Premium Framework

  • Replaces flat premium with risk-based pricing
  • Stronger banks' RoA may improve by ~4 bps
  • 80% of deposits likely to benefit from discounts
  • Introduces "vintage incentive" for long-term stability
2 min read

RBI's Risk-Based deposit insurance premium framework to boost stronger banks' profitability: Report

RBI's new risk-based deposit insurance framework will lower premiums for stronger banks, boosting their profitability and incentivizing better risk management.

"Stronger banks with better risk profiles will pay lower premiums, while weaker banks will face higher rates. - ICRA Report"

New Delhi, February 19

The Reserve Bank of India's newly introduced Risk-based Premium Framework for deposit insurance is expected to enhance profitability for stronger banks while incentivising improved risk management practices across the banking sector, according to an ICRA report.

The framework, released on February 6, 2026, replaces the existing flat premium rate of 12 paise per Rs. 100 of assessable deposits (AD) with a differential pricing structure. Under the revised system, banks will be categorised based on risk scores derived from the Deposit Insurance and Credit Guarantee Corporation's (DICGC) internal rating methodology. Stronger banks with better risk profiles will pay lower premiums, while weaker banks will face higher rates.

ICRA estimates that stronger banks with a long operational history and no claims could see a Return on Assets (RoA) improvement of nearly 4 basis points (bps). At the sectoral level, banks accounting for around 80 per cent of total deposits are likely to benefit from discounted premium rates, translating into an overall RoA gain of about 3 bps.

The RBP Framework also introduces a "vintage incentive," rewarding banks for longer contribution periods to the Deposit Insurance Fund without major stress events. The effective premium rate will be calculated using the formula: Effective rate = Card rate x (1 - Risk model incentive) x (1 - Vintage incentive).

Under the Tier-1 model applicable to scheduled commercial banks (excluding regional rural banks), premium rates could decline to as low as 8 paise per Rs. 100 of AD for Category A banks, offering a maximum discount of 33.33 per cent. An additional vintage-based incentive of up to 25 per cent may further reduce premium payouts.

ICRA noted that while any potential increase in the deposit insurance limit could raise banks' premium costs and impact profitability, stronger banks would likely offset such pressures due to discounted rates under the RBP Framework. The report suggested that the revised pricing structure may pave the way for a future hike in the deposit insurance limit, which currently stands at Rs. 5 lakh per depositor per institution.

The DICGC, with RBI approval, will implement the framework from April 1, 2026.

The report further highlighted that India's insured deposit to assessable deposit ratio (IDR) stood at 41.5 per cent as of March 31, 2025, placing India among the top 10 countries globally in deposit insurance coverage.

- ANI

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Reader Comments

P
Priya S
As a customer, I just hope this doesn't become an excuse for weaker banks to reduce deposit rates further to cover their higher premiums. The focus should be on them becoming stronger, not passing costs to us. 🤔
R
Rohit P
Finally! A policy that differentiates between a solid PSU bank and a shaky cooperative bank. The 'vintage incentive' is a clever touch. It rewards stability and long-term prudent banking. This should boost confidence in the system.
S
Sarah B
The report mentions this might pave the way for increasing the insurance limit from ₹5 lakhs. That is the real need of the hour! With inflation, that cover needs to be raised significantly to protect middle-class savings.
V
Vikram M
While the intent is good, the implementation will be key. How transparent will the DICGC's internal risk rating be? There's a risk of perception that larger private banks get an unfair advantage. The RBI must ensure the methodology is crystal clear and fair to all.
K
Karthik V
A 4 bps RoA improvement might sound small, but for large banks, that's crores in extra profit. This will make our banking sector more robust and attractive for investors. Smart policy making. 👍

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