NEW DELHI: The RBI has proposed a flat-rate to a Risk-Based Premium (RBP) framework, effective from the next financial year, under the Deposit Insurance scheme. This move marks a shift towards differentiating insurance costs based on the financial health and soundness of individual banks. The Deposit Insurance and Credit Guarantee Corporation (DICGC), which operates the deposit insurance scheme under the DICGC Act, 1961, has traditionally charged all banks a uniform premium, currently pegged at 12 paise per Rs 100 of assessable deposits.
The RBI says while the existing flat-rate system is simple to administer, its major drawback is its inability to distinguish between banks based on their risk profile. Under the new RBP model, banks demonstrating greater financial stability and robustness will be rewarded with a significantly lower premium payout, fostering better risk management across the sector.
A detailed notification outlining the parameters and implementation mechanism of the new Risk-Based Premium model will be issued shortly.
Background of deposit insurance in India
Under the Deposit Insurance scheme, each depositor in a bank is insured up to a maximum of Rs 5,00,000. This limit covers both the principal and accrued interest amount across all deposits (Savings, Fixed, Current, Recurring) held by the customer in the "same right and same capacity" at a single bank. The limit was substantially raised from Rs 1 lakh to Rs 5 lakh in February 2020.
Deposit insurance in India is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the Reserve Bank of India (RBI). Established in 1962, the DICGC provides a critical safety net for the banking system, ensuring public confidence and protecting depositors against bank failures.
The insurance cover is mandatory for almost all banks operating in India, including Commercial Banks, Foreign Banks, Local Area Banks, Regional Rural Banks, and Co-operative Banks (excluding Primary Co-operative Societies).
The insurance premium is paid entirely by the insured banks, not the depositors, making the protection free for customers.
Under the updated DICGC Act, the Corporation is liable to pay depositors up to the Rs 5 lakh limit within 90 days if a bank is placed under moratorium (All Inclusive Directions) by the RBI, ensuring quick access to funds during times of stress.
Deposits held across different branches of the same bank are aggregated for the purpose of the ₹5 lakh limit. However, deposits held in different ownership capacities (e.g., individual account vs. joint account with a spouse) or in different banks are insured separately.