{"id":62326,"date":"2025-12-22T18:33:09","date_gmt":"2025-12-22T13:03:09","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=62326"},"modified":"2025-12-22T18:37:15","modified_gmt":"2025-12-22T13:07:15","slug":"rbi-risk-based-deposit-insurance","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/22-12-2025\/rbi-risk-based-deposit-insurance","title":{"rendered":"RBI Board Approves Risk-Based Deposit Insurance Framework for Banks"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/ Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The Central Board of Directors of the Reserve Bank of India (RBI) approved a risk-based deposit insurance framework for banks at its 620th meeting, held in Hyderabad.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is the Deposit Insurance Framework?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Deposit insurance is a mechanism to <strong>protect bank depositors against the risk<\/strong> of bank failure.<\/li>\n\n\n\n<li>In India, deposit insurance is administered by the <strong>Deposit Insurance and Credit Guarantee Corporation (DICGC)<\/strong>, a wholly owned subsidiary of the RBI.\n<ul class=\"wp-block-list\">\n<li>Currently, deposits up to<strong> \u20b95 lakh<\/strong> per depositor per bank are insured.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Banks pay an insurance premium to DICGC, which funds payouts to depositors if a bank fails.<\/li>\n\n\n\n<li><strong>Existing System: <\/strong>DICGC has been operating the flat rate premium-based deposit insurance scheme since <strong>1962.\u00a0<\/strong>\n<ul class=\"wp-block-list\">\n<li>Under the scheme, the banks are now charged a premium of <strong>12 paise per \u20b9100 of assessable deposits.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Risk-based Premium Structure&nbsp;<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Under the risk-based framework, premiums are expected to vary based on parameters such as <strong>asset quality, capital adequacy, and overall risk exposure<\/strong>.\u00a0<\/li>\n\n\n\n<li>Such models are used in several banking systems globally to align <strong>insurance costs with underlying risk<\/strong> and reduce cross-subsidisation between banks.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Significance of the New Framework<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Promotes Financial Discipline: <\/strong>Banks are incentivised to improve asset quality and capital buffers to reduce premium burden. It encourages prudent lending and better risk management practices.<\/li>\n\n\n\n<li><strong>Reduces Cross-Subsidisation:<\/strong> Under the flat-rate system, well-managed banks indirectly subsidise weaker banks. Risk-based pricing ensures that each bank bears the cost of its own risk.<\/li>\n\n\n\n<li><strong>Aligns with Global Best Practices: <\/strong>Several countries, including the <strong>US and EU<\/strong> members, already follow risk-based deposit insurance models.<\/li>\n\n\n\n<li><strong>More Efficient System:<\/strong> Sound banks benefit from lower insurance costs, improving profitability and competitiveness.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Implementing Challenges<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Impact on Weak Banks:<\/strong> Higher premiums may strain already stressed banks, particularly smaller or regional banks, reducing their lending capacity and worsening financial stress.<\/li>\n\n\n\n<li><strong>Complexity in Assessment: <\/strong>Risk evaluation requires robust data, transparent methodology, and continuous monitoring. Misclassification or opacity may raise concerns among banks.<\/li>\n\n\n\n<li><strong>Procyclicality Risk: <\/strong>During economic downturns, banks\u2019 risk profiles may deteriorate, leading to higher premiums when they can least afford them.<\/li>\n\n\n\n<li><strong>Possibility of Regulatory Arbitrage:<\/strong> Banks may attempt to temporarily improve metrics to reduce premiums without addressing structural weaknesses.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Way Ahead<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>A gradual and calibrated rollout<\/strong> of the risk-based framework is essential.<\/li>\n\n\n\n<li>RBI and DICGC must ensure <strong>transparent criteria<\/strong>, periodic review, and safeguards against procyclicality.<\/li>\n\n\n\n<li>Special consideration may be required for <strong>small banks and cooperative banks <\/strong>during the transition.<\/li>\n\n\n\n<li>Combined with strong supervision, the framework can enhance depositor protection and systemic stability.<\/li>\n<\/ul>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.newsonair.gov.in\/rbi-central-board-approves-risk-based-deposit-insurance-framework-for-banks\/\" target=\"_blank\" rel=\"noopener\"><strong>AIR<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong>Context<\/strong><\/p>\n<li class=\"ms-5\">The Central Board of Directors of the Reserve Bank of India (RBI) approved a risk-based deposit insurance framework for banks at its 620th meeting, held in Hyderabad.<\/li>\n<p><\/p>\n<p><strong>What is the Deposit Insurance Framework?<\/strong><\/p>\n<li class=\"ms-5\">Deposit insurance is a mechanism to protect bank depositors against the risk of bank failure.<\/li>\n<li class=\"ms-5\">In India, deposit insurance is administered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly owned subsidiary of the RBI.<\/li>\n<li class=\"ms-5\">Currently, deposits up to \u20b95 lakh per depositor per bank are insured.<\/li>\n<p><a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/22-12-2025\/rbi-risk-based-deposit-insurance\" class=\"btn btn-primary btn-sm float-end\">Read\u00a0More<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-62326","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/62326","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=62326"}],"version-history":[{"count":3,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/62326\/revisions"}],"predecessor-version":[{"id":62329,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/62326\/revisions\/62329"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=62326"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=62326"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=62326"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}