The Reserve Bank of India (RBI) has taken a major step toward modernising the country’s deposit insurance framework by approving a risk-based deposit insurance premium system for banks, the central bank’s board announced following its recent meeting in Hyderabad. Under the new approach, lenders will no longer pay a uniform insurance premium; instead, the cost of deposit insurance will be linked to each bank’s individual risk profile, rewarding financially sound and well-managed banks with lower premiums while assigning higher costs to those with weaker risk metrics.

Key Highlights

• RBI board approves risk-based deposit insurance premiums, replacing uniform rates to strengthen banking sector stability.
• Safer banks may pay lower insurance costs, while deposit coverage limit of ₹5 lakh remains unchanged.

This shift marks a departure from the longstanding flat-rate system under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961, in which all banks have paid the same 12 paise per ₹100 of assessable deposits regardless of their financial strength. The proposed risk-based model aims to reinforce prudent risk management practices across the banking sector by creating stronger incentives for institutions to maintain robust capital adequacy, asset quality, and governance standards.

The RBI first flagged this reform in October, outlining its intention to replace the flat premium with a structure that differentiates banks on the basis of risk. While the current premium will act as a ceiling, well-rated banks are expected to benefit from reduced insurance costs under the new framework, which is likely to take effect from the next financial year (2026-27) after the issuance of the detailed regulatory notification.

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Importantly for depositors, the existing ₹5 lakh insurance coverage limit per depositor per bank will remain unchanged, ensuring continued protection for individual bank customers without direct impact on their costs. The amended framework is designed to make the deposit insurance system more equitable, encourage stronger risk management within banks, and support the broader stability of the financial system by aligning premium costs more closely with each institution’s risk footprint.

Overall, the RBI’s board approval of the risk-based deposit insurance structure reflects its ongoing efforts to strengthen the resilience and competitiveness of India’s banking sector as part of wider regulatory reforms.