India to Roll Out Risk-Based Deposit Insurance Premiums for Banks from April 1
India will introduce a risk-based deposit insurance premium system for banks from April 1, replacing a flat-rate structure that has been in place since 1962. Under the new framework announced by the Reserve Bank of India (RBI), banks will pay premiums based on their individual risk profiles, a move aimed at encouraging stronger risk management practices and rewarding financially sound lenders with lower insurance costs.
The revised system will be implemented by the Deposit Insurance and Credit Guarantee Corporation (DICGC) and will assess banks using financial and supervisory indicators such as capital adequacy, asset quality, earnings and liquidity. It will also factor in the potential loss a bank’s failure could pose to the deposit insurance fund. Two assessment models have been introduced: a Tier 1 model for scheduled commercial banks, excluding regional rural banks, and a Tier 2 model for regional rural banks and cooperative banks.
Premium changes under the new framework will be capped, with risk-based adjustments limited to 33.33% above the base rate. Banks may also qualify for a “vintage” incentive of up to 25% for long-term contributions to the insurance fund without significant claim payouts. However, payments banks and local area banks will continue paying the standard rate due to data constraints, while certain urban cooperative banks will be brought under the system after exiting supervisory restrictions.
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