RBI has launched Risk-based Premium Framework for Deposit Insurance. With these new guidelines, Strong Banks will now pay Less Premium for insurance of deposits. The money of customers in banks is insured by DICGC. For this insurance, banks need to pay a premium to DICGC. DICGC has been operating the deposit insurance since 1962 on a flat rate premium system [presently 12 paise per ₹100 of assessable deposits (AD)].
Now, the RBI has launched new rules and as per the new rules, strong banks will have to pay less premium, and weak banks will have to pay more premium. Till now, all banks – weak and strong had to pay the same fixed premium.
RBI guidelines regarding Risk-based Premium Framework for Deposit Insurance are as follows:
- There shall be two risk assessment models – Tier 1 Model and Tier 2 Model. Tier 1 Model is applicable to Scheduled Commercial Banks other than Regional Rural Banks (RRBs), and based on supervisory ratings, quantitative assessment (CAMELS parameters) and potential loss to Deposit Insurance Fund (DIF) in case of failure of insured banks.
- Tier 2 Model, applicable to RRBs and cooperative banks is based on quantitative assessment (CAMELS parameters) and potential loss to DIF in case of failure of insured banks.
- The maximum Risk_model_incentive shall be 33.33% over the card rate.
- Additionally, the RBP framework also provides benefits of vintage (signifying longer contribution to DICGC’s Deposit Insurance Fund without any major distress or claim payouts from DICGC). Maximum Vintage_incentive of upto 25% shall be provided.
- The effective rate of premium therefore will be calculated, as under:
- The framework envisages a rating override policy in case of adverse material information/development, subsequent to the initial risk rating.
- The banks will be required to maintain confidentiality of ratings and not to disclose ratings or amount of premium paid to DICGC.
- Local Area Bank (LABs) and Payments Banks (PBs) will continue to pay the premium at card rate (i.e., 12 paise per ₹100 of AD per annum) as there are data point limitations to bring them into a RBP model (they account for less than 1% of the premium collected).
- All UCBs under the Supervisory Action Framework (SAF)/Prompt Corrective Action (PCA) of RBI will continue to pay the card rate of 12 paise and will be considered for RBP from the financial year following the year in which the bank exits SAF/PCA.
- The RBP framework shall be effective from April 1, 2026 and will be reviewed at least once in three years.
Click here to download RBI Circular on Risk-based Premium Framework for Deposit Insurance
