As of March 2026, the Deposit Insurance and Credit Guarantee Corporation (DICGC), an RBI subsidiary, provides deposit insurance of up to Rs. 5 lakhs per depositor per bank. The bank that holds the deposit pays a flat premium of Rs. 0.12 per Rs. 100 of assessable deposits. With a flat premium rate, the current system treats banks that manage risk better the same as those that are weaker or riskier. However, this is set to change from 1st April 2026. The DICGC will implement the Risk Based Premium (RBP) framework, which will incentivise sound risk management by banks. In this article, we will understand the Risk Based Premium (RBP) framework and how banks can save on deposit insurance premiums under it.
What is the Risk Based Premium framework?
Effective 1st April 2026, the DICGC will implement the Risk Based Premium (RBP) framework, which will differentiate banks that manage risks better. The RBP framework provides for differential premium rates for different categories of banks that pay the deposit insurance premium.
The deposit insurance premium rate card remains the same at Rs. 0.12 per Rs. 100 of assessable deposits (AD) per annum. However, the RBP framework incentivises sound risk management by banks and facilitates better-managed banks to pay a lower premium than the rate card. A bank can get a discount on the deposit premium in two ways:
- Up to 33% discount based on the bank’s risk assessment score, and
- Up to 25% discount as a vintage incentive
Discount based on risk assessment score
The DICGC will use an internal rating methodology to assign a risk assessment score to each bank. Based on the score, each bank will be placed in one of four risk categories: A, B, C, and D. Banks in Category A have the lowest risk and will pay a lower premium of Rs. 0.08, translating into a 33.33% discount.
Based on the rating category, the bank will pay the following discounted premium rates vis-Ã -vis the original flat premium rate of Rs. 0.12 per Rs. 100 of assessable deposits (AD) per annum.
Rating category |
A |
B |
C |
D |
|
Current premium card rate |
0.12 |
0.12 |
0.12 |
0.12 |
|
New premium card rate |
0.08 |
0.10 |
0.11 |
0.12 |
|
Discount over the card rate |
33.33% |
16.67% |
8.33% |
0% |
Note: The premium rates are in Rupees per Rs. 100 of AD per annum
The table above shows how an A category bank can enjoy a discount of up to 33.33% on the premium, whereas a D category bank will not get any discount.
Vintage incentive
The RBP framework will also provide a vintage benefit. Vintage signifies a bank’s longer premium contribution to DICGC’s Deposit Insurance Fund (DIF) without any major stress events or DICGC claim payouts. A bank can earn a vintage incentive of 1% for every completed year. A bank with 25 years or longer in existence can get a maximum vintage discount of 25%, provided it has no record of restructuring or major distress.
Restructuring/major distress includes:
- Imposition of a moratorium
- Board supersession by the RBI
- Appointment of Administrator by the RBI
- Restriction on withdrawal of deposits by the RBI
- Scheme of Reconstruction by the RBI
In the event of restructuring or major distress, the vintage incentive will be calculated from the date of such restructuring or major distress.
The total discount on premium that a bank will get will be a function of the rating category discount and vintage incentive. Thus, a bank can receive a substantial discount on the annual deposit insurance premium provided its rating category is A (33.33% discount) and the vintage incentive is 25%.
How will the RBP framework help?
The RBP framework will help banks with sound risk management systems and a superior track record save a significant amount on deposit insurance premiums outgo every year. The premium savings will shore up the bank’s profitability. It will encourage weaker banks to strengthen their risk management systems to qualify for a discount on the deposit insurance premium payable. Thus, it will strengthen the entire banking system and improve the resilience of DICGC’s Deposit Insurance Fund.
Will the change in premium due to the RBP framework affect you?
The RBP framework will be effective from 1st April 2026. The DICGC will review it at least once in three years. Currently, under the flat rate premium regime, the bank pays the premium with no impact on the customers (depositors). Post 1st April 2026, under the RBP framework also, the bank will continue to pay the premium with no impact on the customers (depositors). If the bank gets a discount due to a higher category and vintage incentive, the savings will boost the bank’s profits.
Will the RBP framework lead to an increase in deposit insurance coverage?
Currently, DICGC provides a deposit insurance of Rs. 5 lakhs per customer per bank. The limit was last raised from Rs. 1 lakh to Rs. 5 lakh in 2020. According to the DICGC website, as of 31st March 2025, while 97.6% of bank accounts are fully protected, the deposit insured ratio is only 41.5%. While the total assessable deposits are Rs. 240 lakh crores, the insured deposits are Rs. 100 lakh crores only. Hence, there is scope to increase deposit insurance coverage, given the low 41.5% deposit insured ratio.
The current flat insurance premium (Rs. 0.12/Rs. 100 of AD) system treats strong and weak banks equally, irrespective of their financial health. If deposit insurance coverage is increased, it will lead to higher premium outgo and impact the profitability of banks.
However, under the RBP framework, stronger banks can save a significant amount of premium outgo in the form of discounts. In such a scenario, if deposit insurance coverage is increased, the savings on premiums under the RBP framework can be redeployed by stronger banks towards the incremental premium for higher deposit insurance coverage. So, under the RBP framework, the increase in deposit insurance coverage may not have a significant impact on stronger banks. Thus, the RBP framework opens the door for an increase in deposit insurance coverage, something that depositors with higher balances have been asking for. Whether and when the Central Government and the RBI will act on it remains to be seen.
