RBI Approves Risk-Based Deposit Insurance Framework for Banks

On 19th December 2025, the Reserve Bank of India (RBI) approved a risk-based deposit insurance framework for banks at its 620th board meeting.

The reform aims to incentivise prudent banking behaviour and reduce moral hazard by rewarding well-managed financial institutions.

Aspect	Details
Deposit Insurance	Deposit insurance protects bank depositors against the risk of losing their deposits if a bank faces failure or severe financial stress.
Administering Body	Deposit insurance is administered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the RBI.
Earlier Flat Premium	Earlier, banks paid a flat premium of 12 paise per Rs. 100 of assessable deposits.
Limitation of Old System	The flat-rate system was simple to administer but did not distinguish between banks based on their financial soundness.
New Framework	Banks with strong capital, governance, and asset quality will benefit from lower premium rates under the new framework.
Higher-Risk Banks	Higher-risk institutions will be required to contribute more to the deposit insurance fund, encouraging better risk management and prudent banking practices.

PT Facts

DICGC Cover: Up to Rs. 5 lakh per depositor per bank.
Covered Deposits: Savings, current, fixed and recurring deposits.
Covered Banks: Commercial banks, RRBs, local area banks and many cooperative banks.
Risk-Based Premium: Encourages better governance and prudent risk management.
Depositor Protection: Protects depositors against loss within the insured limit.
Bank Stress: Deposit insurance does not prevent a bank from facing financial stress or failure.

Source:

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