India’s central bank, the Reserve Bank of India (RBI), has unveiled a risk-sensitive framework for deposit insurance premiums that is expected to enhance profitability for well-capitalised and prudently managed banks, while encouraging improved risk governance across the wider banking system. The assessment comes from a recent report by domestic ratings agency ICRA.
Announced on 6 February 2026, the Risk-Based Premium (RBP) Framework replaces the long-standing flat premium of 12 paise per ₹100 of assessable deposits (AD) with a differentiated structure linked to each bank’s risk profile. Under the new regime, banks will be assigned risk scores based on the internal rating methodology of the Deposit Insurance and Credit Guarantee Corporation (DICGC), the RBI-backed body responsible for deposit insurance.
From Uniform Levy to Risk Sensitivity
Previously, all banks paid identical premiums regardless of their financial strength or operational stability. The revised system introduces risk-based pricing: banks with stronger balance sheets, robust asset quality and sound governance will pay lower premiums, whereas weaker institutions will incur higher costs.
According to ICRA, stronger banks—particularly those with long operating histories and no significant claims on the Deposit Insurance Fund—could see an improvement in Return on Assets (RoA) of nearly 4 basis points (bps). At a sectoral level, institutions accounting for roughly 80 per cent of India’s total deposits are expected to benefit from discounted premiums, potentially lifting overall banking system RoA by around 3 bps.
Vintage Incentive and Pricing Formula
A notable feature of the RBP Framework is the introduction of a “vintage incentive”. Banks that have contributed to the Deposit Insurance Fund over extended periods without experiencing material stress events will qualify for additional premium reductions.
The effective premium rate will be determined as follows:
Effective Rate = Card Rate × (1 – Risk Model Incentive) × (1 – Vintage Incentive)
Under the Tier-1 model, which applies to scheduled commercial banks (excluding regional rural banks), Category A institutions could see their premium fall to as low as 8 paise per ₹100 of AD—representing a maximum discount of 33.33 per cent. A further vintage-based incentive of up to 25 per cent may reduce the payable amount even more.
Illustrative Premium Structure
| Category | Card Rate (per ₹100 AD) | Maximum Risk Discount | Possible Effective Rate |
|---|---|---|---|
| Category A (Low Risk) | 12 paise | 33.33% | As low as 8 paise |
| Vintage Incentive | Applied additionally | Up to 25% | Further reduction |
Implications for Deposit Insurance
ICRA observes that any future increase in the deposit insurance limit—currently ₹5 lakh per depositor per institution—could raise aggregate premium outgo and weigh on profitability. However, stronger banks are likely to cushion such pressures under the discounted RBP structure. The revised pricing mechanism may, in fact, create policy space for an upward revision of the insurance cap.
The DICGC, with RBI approval, will implement the new framework from 1 April 2026. As of 31 March 2025, India’s insured deposit to assessable deposit ratio (IDR) stood at 41.5 per cent, placing the country among the top ten globally in terms of deposit insurance coverage.
Analysts suggest that the move marks a structural shift in India’s deposit insurance architecture—aligning incentives with prudence, strengthening financial discipline, and reinforcing systemic stability over the longer term.