Source: BS
Why in News?
India is shifting from a uniform deposit insurance premium to a risk-based premium (RBP) system, where banks pay insurance premiums according to their risk profile.
This also sets the stage for a likely increase in deposit insurance cover from ₹5 lakh to possibly ₹15 lakh.
What is Deposit Insurance?
- Protects bank depositors if a bank fails.
- Currently covers up to ₹5 lakh per depositor per bank.
- Managed by DICGC (established in 1962).
Key Change: Risk-Based Premium (RBP)
Earlier system:
- Flat premium of 12 paise per ₹100 deposits for all banks.
New system:
- Premium linked to bank risk rating.
- Better-rated banks pay lower premiums, riskier banks pay closer to the maximum.
Proposed premium structure (per ₹100 deposits):
- Rating A → 8 paise
- Rating B → 10 paise
- Rating C → 11 paise
- Rating D → 12 paise (cap)
Two-Tier Framework
- Tier I: Scheduled commercial banks (excluding RRBs).
- Tier II: Regional Rural Banks (RRBs) and cooperative banks.
Objectives
- Encourage prudent risk management by banks.
- Strengthen financial stability.
- Align insurance cost with bank risk.
