RBI’s new risk-based deposit insurance framework to boost bank profitability, says ICRA

The Reserve Bank of India’s (RBI) newly introduced Risk-Based Premium (RBP) Framework for deposit insurance is expected to improve profitability for stronger banks while promoting better risk management practices across the sector, according to an ICRA report.

Differential pricing model replaces flat premium

Launched on February 6, 2026, the framework replaces the existing flat premium of 12 paise per Rs 100 of assessable deposits (AD) with a differential pricing model. Banks will now be categorised based on risk scores derived from the Deposit Insurance and Credit Guarantee Corporation’s (DICGC) internal rating methodology. Stronger banks with healthier risk profiles will pay lower premiums, whereas weaker banks will face higher rates.

Add Zee Business as a Preferred Source

"As per the risk-based premium (RBP) framework, Deposit Insurance and Credit Guarantee Corporation (DICGC; RBI’s subsidiary that insures bank deposits up to Rs. 5 lakh per depositor per institutions) will implement differential premium pricing instead of the current practice of a flat rate of 12 paise per Rs 100 of assessable deposits (AD; i.e. eligible for DICGC insurance) for all banks," ICRA's report said.

Impact on bank profitability

ICRA estimates that well-established banks with no prior claims could see their Return on Assets (RoA) improve by nearly 4 basis points (bps). Across the sector, banks holding roughly 80 per cent of total deposits are likely to benefit from discounted premiums, translating into an overall RoA gain of about 3 bps.

"ICRA estimates that the revised deposit insurance norms can improve the RoA of strong banks with a long operating history by almost 4 bps. On a whole, banking sector is likely to witness RoA benefit of around 3 bps," the report noted.

Introduction of 'vintage incentive'

The framework also introduces a 'vintage incentive', rewarding banks for longer contribution periods to the Deposit Insurance Fund without stress events. The effective premium rate will be calculated as:

Effective Rate = Card Rate × (1 – Risk Model Incentive) × (1 – Vintage Incentive)

Tier-1 model and discounted premiums

Under the Tier-1 model for scheduled commercial banks (excluding regional rural banks), Category A banks could see premium rates fall to as low as 8 paise per Rs 100 of AD, a maximum discount of 33.33 per cent. An additional vintage-based incentive of up to 25 per cent could further reduce premium payments.

Deposit insurance limit considerations

ICRA noted that although a potential rise in the deposit insurance limit could increase premium costs and affect bank profitability, stronger banks are likely to offset these pressures through the discounted rates under the RBP Framework. The report also indicated that the revised pricing structure could facilitate a future increase in the deposit insurance limit, which currently remains at Rs 5 lakh per depositor per institution.

"Any rise in the deposit insurance limit would increase the premium payout of banks, impacting their profitability. Nevertheless, stronger banks, getting discounted rates under RBP framework, would be able to negate the impact," the report said.

Implementation and global standing

The DICGC, with RBI approval, will implement the new framework from April 1, 2026.

ICRA also highlighted that as of March 31, 2025, India’s insured deposit to assessable deposit ratio (IDR) stood at 41.5 per cent, ranking the country among the top 10 globally in deposit insurance coverage.

With ANI inputs