New Delhi

The Reserve Bank of India's newly introduced Risk-based Premium (RBP) Framework for deposit insurance is expected to enhance profitability for stronger banks while incentivising improved risk management practices across the banking sector, according to an ICRA report.

The framework, released on February 6, 2026, replaces the existing flat premium rate of 12 paise per Rs. 100 of assessable deposits (AD) with a differential pricing structure. Under the revised system, banks will be categorised based on risk scores derived from the Deposit Insurance and Credit Guarantee Corporation's (DICGC) internal rating methodology. Stronger banks with better risk profiles will pay lower premiums, while weaker banks will face higher rates.

ICRA estimates that stronger banks with a long operational history and no claims could see a Return on Assets (RoA) improvement of nearly 4 basis points (bps). At the sectoral level, banks accounting for around 80 per cent of total deposits are likely to benefit from discounted premium rates, translating into an overall RoA gain of about 3 bps.

The RBP Framework also introduces a "vintage incentive," rewarding banks for longer contribution periods to the Deposit Insurance Fund without major stress events. The effective premium rate will be calculated using the formula: Effective rate = Card rate x (1 - Risk model incentive) x (1 - Vintage incentive).

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

ICRA noted that while any potential increase in the deposit insurance limit could raise banks' premium costs and impact profitability, stronger banks would likely offset such pressures due to discounted rates under the RBP Framework. The report suggested that the revised pricing structure may pave the way for a future hike in the deposit insurance limit, which currently stands at Rs. 5 lakh per depositor per institution.

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

The report further highlighted that India's insured deposit to assessable deposit ratio (IDR) stood at 41.5 per cent as of March 31, 2025, placing India among the top 10 countries globally in deposit insurance coverage.