RBI Insurance Policy: A significant change is coming to deposit insurance in India’s banking system from April 2026. The Reserve Bank of India (RBI) has decided that deposit insurance premiums will no longer be levied at a uniform rate across all banks. Instead, a risk-based premium model will be implemented, where the premium will be determined based on the bank’s financial strength. Banks that are safe and strong will have to pay lower insurance premiums, while weaker banks will face a higher burden.
Until now, a uniform rate system for deposit insurance was in place in India, which was introduced in 1962. Under this system, all banks had to pay 12 paise for every 100 rupees of their total deposits to the Deposit Insurance and Credit Guarantee Corporation (DICGC). The bank’s financial condition, risk level, or quality of management had no impact on this rate. The Reserve Bank believed that this system needed improvement as it did not incentivize banks to adopt better risk management practices.
What is the New Model?
Under the new risk-based premium model, banks will be evaluated based on their financial health and risk profile. This will include parameters such as capital adequacy, non-performing assets, profitability, liquidity position, and supervisory ratings. From April 2026, banks will be categorized into four categories: A, B, C, and D, where category A represents the lowest risk and category D represents the highest risk.
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What will be the Premium Rate?
The premium rates will also change under this new system. Banks considered the safest will have to pay a premium of approximately 8 paise per 100 rupees of deposits, which is about one-third less than the current rate. For medium-risk banks, the rate will be 10 or 11 paise, while the highest-risk banks will have to pay 12 paise, as before. This will directly benefit banks with strong balance sheets and increase pressure on weaker banks to improve their financial position.
How will Risk be Assessed?
Two different models will be adopted to assess the risk of banks. The first model will apply to scheduled commercial banks, taking into account supervisory ratings, CAMELS standards, and potential losses to the deposit insurance fund. The second model will be for regional rural banks and cooperative banks, where the focus will primarily be on data and potential risks.
Relief for older banks
The Reserve Bank has also introduced a vintage incentive to provide additional relief to older and stable banks. Banks with a long track record of stability and without any major regulatory restrictions or restructuring will receive additional concessions. This concession can be up to one percent annually and can reach a maximum of 25 percent in total.
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However, Local Area Banks and Payments Banks will remain outside this risk-based framework. For these banks, the existing flat rate of 12 paise per 100 rupees of deposits will continue to apply. Accurate risk assessment is not possible for them due to data limitations, and their contribution to the total premium collection is also very small.
What will be the impact on depositors?
This change will not have any direct negative impact on depositors. The deposit insurance cover limit and the payment process will remain the same. This means that if a bank fails, there will be no reduction in the insurance amount received by depositors. However, the reduced costs for stronger banks may indirectly benefit customers with better interest rates in the future.
The Deposit Insurance and Credit Guarantee Corporation is a wholly owned subsidiary of the Reserve Bank of India, which provides insurance protection to bank depositors in the country. Currently, deposit insurance cover of up to five lakh rupees per depositor is available, and this scheme is mandatory for all licensed banks.
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Adarsh P
Adarsh Pal is a content writer at Timesbull Media. He specializes in writing news related to industry updates, the automotive sector, banking, telecommunications, the travel sector, and personal finance. Adarsh has previously worked with several digital media channels. He is skilled at presenting news accurately and disseminating information based on...
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