Source: TH
Context:
The RBI’s Central Board of Directors has approved a risk-based deposit insurance framework for banks during a meeting held in Hyderabad.
About the Risk-Based Deposit Insurance Framework
- Transition from the existing flat premium structure to a model where insurance premiums vary based on the financial risk profile of individual banks.
- Aim:
- Differentiated premium charges based on bank soundness
- Reduce burden on financially strong banks
- Encourage better risk management
- Detailed notification is expected soon, and the framework will become operational from the next financial year.
Existing System
- Operated by the Deposit Insurance and Credit Guarantee Corporation (DICGC) since 1962.
- Banks currently pay 12 paise per ₹100 of assessable deposits as insurance premium.
- Uniform charges apply to all banks irrespective of risk levels.
Why Change Was Needed?
RBI said the flat-rate model:
- Is simple but does not reward safer banks
- Fails to reflect differences in risk exposure
- Can lead to cross-subsidisation by stronger banks
The risk-based model will allow:
- Premium alignment with bank-specific risk
- Incentives for better governance
- Efficiency and fairness in the insurance system
