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RBI Introduces Risk-Based Deposit Insurance Plan for Banks

Banking and Insurance

BusinessHonor - RBI Launches Risk-Based Deposit Insurance

Business Honor
02 October, 2025

RBI replaces flat insurance with a risk-based model; safer banks pay less, and the ₹5 lakh coverage limit remains unchanged.

An important change to the Reserve Bank of India's (RBI) deposit insurance plan has been announced. Banks will no longer have a flat insurance charge as of the next fiscal year. Instead, safer banks will pay less to safeguard funds under a new risk-based model, while risky banks will have to pay more. This replaces the current system, that pays the Deposit Insurance and Credit Guarantee Corporation (DICGC), a central bank division, 12 rupees for every 100 ₹ in deposits made by all banks. Strong banks will benefit from the new deal, that will maintain the premium fixed at the existing rate, but no bank will pay more than it paid previously.

Additionally, the ₹5 lakh protection limit per bank and depositor is still in force. This limit fully covered 97.6% of all Indian savings accounts as of the beginning of 2025. According to RBI Governor Sanjay Malhotra, the goal is to strengthen the banking system and promote good risk management. According to experts, it's an excellent move, but there are still challenges to overcome. "It's hard to design a fair system that does not harm small or cooperative banks," Shruti Jain of Arihant Capital said. Icra's Anil Gupta highlighted that large, stable banks might pass savings on by increasing the rate of interest, that could attract more customers.

Higher premiums for weaker banks, especially if they are considered high risk, might discourage depositors. Resulting in fund withdrawals and financial difficulties. There are rising calls to offer optional top-up coverage, increase the ₹5 lakh insurance limit, and use real-time data for dynamic pricing. If it is executed correctly, this would be a more intelligent, fair, and strong financial industry in India.