RBI may retain existing cap for deposit insurance premiums

The Reserve Bank of India (RBI) may retain the current 12 paise/Rs 100 cap on deposit insurance premiums, even after it moves towards the new risk-based premium model (RBP) proposed in the October policy, said banking industry sources. However, for well-managed banks, the insurance premium is expected to go down. Currently, all banks the Deposit Insurance and Credit Guarantee Corporation (DICGC) pay an uniform premium of 12p/Rs 100. “The premium for cooperative banks or other less well-run banks is not expected to exceed the current 12 paise cap. They will continue to pay their existing premium,” said a banker. He also added that “well-run public sector, private sector, and strong cooperative banks are likely to see a decrease in their premiums, freeing up funds for better use.” Retaining the cap will ensure that cooperative banks, which account for 1,843 of the 1,982 insured banks and hold Rs 12 lakh crore in deposits, will not face any burden due to higher premiums. At the same time, stronger banks will benefit from lower premiums. For a bank like State Bank of India, which pays Rs 5,400 crore as insurance premium, it could be a significant relief. In its monetary policy announcement on October 1, 2025, RBI Governor Sanjay Malhotra announced the move to a new risk-based premium framework for deposit insurance in India. He stated that “while the existing system is simple to understand and administer, it does not differentiate between banks based on their soundness. It is, therefore, proposed to introduce a risk-based premium model, which will help banks that are more sound to save significantly on the premium paid.” “The current system means strong entities contribute significantly, effectively subsidising payouts for smaller, struggling banks. The new model aims for a more equitable contribution based on risk,” said a banker from a PSU bank. The proposed framework, effective from the next financial year (FY2027), aims to correct this imbalance. Banks with stronger capital, better governance, and healthier asset quality will benefit from lower premiums, potentially as low as six paise, said the banker. Bankers consider this a very good move, as it prevents unnecessary money from being collected and lying idle with DICGC (deposit insurance and credit guarantee corporation), unless the government decides to increase the deposit insurance cap, currently at Rs 5 lakh. As of March 2025, the deposit insurance fund stood at Rs 2.28 lakh crore, backed by cumulative premium receipts of Rs 26,764 crore. In FY25, commercial banks made no claims, and the DICGC settled just Rs 476 crore in claims, down from Rs 1,437 crore in FY24, highlighting the limited payout requirement and the need for more efficient fund usage. The accumulated surplus for the deposit insurance fund (DIF) stood at Rs 2.11 lakh crore as of March 31, 2025, compared to Rs 1.81 lakh crore in the corresponding period of the previous year. Another reason is that while 97.6% of the deposit accounts in the system are fully insured as of March 2025, only 43% of the total deposit value is covered, requiring the need for ongoing policy evolution.