New Risk-Based Deposit Insurance Norms To Aid Well-Rated Banks: ICRA

New Delhi, Feb 9 (KNN) The revised deposit insurance norms are expected to support the profitability of banks in higher risk-rating categories at a time when net interest margins are under pressure, according to rating agency ICRA.

Anil Gupta, Senior Vice President and Co-Group Head – Financial Sector Ratings at ICRA, said the new framework could improve return on assets by nearly 4 basis points for well-rated banks with a long operating history, reported BL. 

He added that the regulator could, in the future, raise the insured deposit limit beyond the current Rs 5 lakh per account without materially affecting bank profitability.

Risk-Based Premium Framework

From April 1, 2026, banks will pay deposit insurance premiums based on their risk profile under the risk-based premium (RBP) framework to be implemented by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI).

Under the framework, banks will pay between 8 paise and 12 paise per annum for every Rs 100 of deposits. Banks classified in the lowest risk category (Category A) will pay 8 paise, while premiums will rise with risk levels—10 paise for Category B, 11 paise for Category C and 12 paise for Category D.

The proposal to introduce the RBP system was approved by the RBI’s Central Board on December 19, 2025.

The RBP framework will be reviewed at least once every three years.

Shift From Flat-Rate System

At present, DICGC charges a flat premium of 12 paise per Rs 100 of assessable deposits. The RBI has noted that while the flat-rate system is simple to administer, it does not distinguish between banks based on their risk management practices. The DICGC Act, 1961, allows for differential premium rates across categories of insured banks.

Based on DICGC’s internal rating methodology, banks will be classified into four risk groups—A, B, C and D.

Risk Assessment Models and Incentives

The framework includes two risk assessment models. The Tier 1 model applies to scheduled commercial banks other than regional rural banks (RRBs) and is based on supervisory ratings, CAMELS-based quantitative parameters and potential losses to the Deposit Insurance Fund (DIF). The Tier 2 model, applicable to RRBs and cooperative banks, is based on CAMELS parameters and potential loss to the DIF.

The RBP framework also includes a ‘vintage’ incentive, reflecting a bank’s long-standing contribution to the insurance fund without major distress or claims. Banks can receive a maximum vintage incentive of up to 25 per cent. 

A rating override mechanism has also been provided in case of adverse developments after the initial risk assessment.

Exceptions 

Local Area Banks and Payments Banks will continue to pay the flat rate of 12 paise per Rs 100 of deposits due to limited data availability, as they account for less than 1 per cent of total premium collections. 

Urban cooperative banks under the Supervisory Action Framework or Prompt Corrective Action will also continue at the flat rate and will be considered for RBP only after exiting these frameworks.

(KNN Bureau)