RBI Central Board Approves Risk-Based Deposit Insurance Framework For Banks

Hyderabad, Dec 20 (KNN) The Central Board of Directors of the Reserve Bank of India (RBI) on Friday approved a risk-based deposit insurance framework for banks, marking a shift fr0m the long-standing flat-rate premium system. 

The decision was taken at the 620th meeting of the Central Board, held in Hyderabad under the chairmanship of RBI Governor Sanjay Malhotra.

The Board discussed the prevailing global and domestic economic situation and the associated challenges. It also reviewed the functioning of select Central Office departments and examined the draft Report on Trend and Progress of Banking in India, 2024–25.

The approval follows an RBI proposal announced in October to introduce a risk-based premium model as an alternative to the existing flat-rate deposit insurance scheme. 

Under the current system, administered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) since 1962, banks pay a uniform premium of 12 paise per Rs 100 of assessable deposits.

The central bank had earlier noted that while the flat-rate system is simple to administer, it does not distinguish between banks based on their financial soundness. 

The proposed risk-based framework is expected to link insurance premiums to the risk profile of banks, allowing stronger and more stable institutions to benefit fr0m lower premium outgo.

The RBI had earlier indicated that a detailed notification outlining the operational aspects of the new framework would be issued shortly. The risk-based deposit insurance system is expected to come into effect fr0m the next financial year.

(KNN Bureau)