India is poised to implement a significant reform of its deposit insurance regime, replacing a decades-old flat-rate premium with a risk-sensitive framework designed to reward prudent banking and strengthen the resilience of the deposit insurance fund. The Reserve Bank of India (RBI) confirmed that, from 1 April, banks will begin paying insurance premiums calibrated to their individual risk profiles. The reform will be administered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), the statutory body that insures bank deposits in the country.
For more than sixty years, India has operated a uniform premium system under which all insured banks paid the same rate regardless of financial health or risk management standards. The current charge stands at 12 paise for every 100 rupees of assessable deposits. While administratively straightforward, the approach failed to distinguish between well-capitalised, conservatively managed lenders and those carrying weaker balance sheets. Policymakers argue that this diluted incentives for sound governance and risk discipline.
The new framework seeks to correct that imbalance by aligning insurance costs with the probability and potential cost of bank failure. Under the RBI’s methodology, institutions will be assessed using a composite of financial and supervisory indicators, including capital adequacy, asset quality, earnings performance, and liquidity buffers. The assessment will also consider the prospective loss a bank’s failure could impose on the deposit insurance fund, thereby internalising some of the systemic risk costs borne by the safety net.
To reflect structural differences across the sector, the RBI has introduced two risk assessment models. A Tier 1 model will apply to scheduled commercial banks, excluding regional rural banks, while a Tier 2 model will cover regional rural banks and cooperative banks. The central bank has sought to temper volatility in premium payments by capping adjustments: risk-based incentives or surcharges will be limited to 33.33% above or below the card rate. In addition, banks with a long record of contributions to the insurance fund without major claim payouts may qualify for a “vintage” incentive of up to 25%, further reducing their effective premium.
Certain institutions will remain outside the risk-based framework for the time being. Payments banks and local area banks will continue to pay the standard card rate due to limitations in the availability and comparability of supervisory data. Urban cooperative banks currently subject to supervisory or corrective action will be transitioned into the new system only after they exit such restrictions, a measure intended to avoid destabilising already fragile institutions.
Regulators expect the reform to sharpen market discipline, encourage stronger balance sheets, and enhance the long-term sustainability of the deposit insurance fund. Over time, the RBI believes the framework will also improve risk transparency across the banking system and reduce moral hazard by ensuring that riskier behaviour attracts a tangible financial cost.
Summary of Key Changes to Deposit Insurance Premiums
| Feature | Previous Regime | New Risk-Based Framework |
|---|---|---|
| Premium structure | Flat rate for all banks | Differentiated by risk profile |
| Current base rate | 12 paise per 100 rupees of assessable deposits | Card rate with risk-based adjustments |
| Assessment criteria | Not applicable | Capital strength, asset quality, earnings, liquidity, potential fund loss |
| Coverage models | Single approach | Tier 1 (scheduled commercial banks), Tier 2 (RRBs and cooperatives) |
| Adjustment cap | Not applicable | ±33.33% around card rate |
| Long-service incentive | None | Up to 25% “vintage” incentive |
| Exemptions | Not applicable | Payments banks and local area banks remain on card rate |
The transition marks one of the most consequential changes to India’s financial safety net in decades, signalling a policy shift towards aligning regulatory costs with risk and performance.