The Reserve Bank of India (RBI) has introduced a Risk-Based Premium (RBP) Framework for deposit insurance, aiming to enhance profitability for stronger banks while promoting better risk management across the sector, according to a report by ICRA.
The new framework, released on February 6, 2026, replaces the existing flat premium of 12 paise per Rs 100 of assessable deposits (AD) with a differential pricing system. Under this structure, banks are assigned risk categories based on scores from the Deposit Insurance and Credit Guarantee Corporation (DICGC) internal rating methodology. Banks with stronger risk profiles will pay lower premiums, while those with weaker profiles will face higher charges.
Impact on Banks and Profitability
ICRA estimates that well-established banks with no claims history could see a Return on Assets (RoA) improvement of nearly 4 basis points (bps). Overall, banks holding approximately 80% of total deposits are expected to benefit from discounted premiums, contributing to an aggregate RoA gain of about 3 bps across the sector.
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The framework also introduces a “vintage incentive”, rewarding banks for longer contribution periods to the Deposit Insurance Fund without experiencing major stress events. The effective premium rate will be calculated as:
Effective rate = Card rate × (1 – Risk model incentive) × (1 – Vintage incentive).
For Tier-1 scheduled commercial banks (excluding regional rural banks), premium rates for Category A banks could drop to 8 paise per Rs 100 of AD, offering a maximum discount of 33.33%. An additional vintage-based incentive of up to 25% may further reduce premiums.
Future Implications and Deposit Insurance Coverage
ICRA noted that any future increase in the deposit insurance limit, currently set at Rs 5 lakh per depositor per institution, could raise premium costs. However, stronger banks are expected to offset this impact through discounted rates under the RBP Framework. The report suggests that the revised pricing structure may pave the way for an eventual hike in the insurance limit.
The DICGC, with RBI approval, will implement the new framework from April 1, 2026. As of March 31, 2025, India’s insured deposit to assessable deposit ratio (IDR) stood at 41.5%, placing it among the top 10 countries globally in terms of deposit insurance coverage.