RBI Board Greenlights Risk-Based Deposit Insurance Framework for Banks

The Central Board of Directors of the Reserve Bank of India (RBI) has approved a risk-based deposit insurance framework for banks.  

The decision was taken at the Board’s 620th meeting held in Hyderabad, chaired by RBI Governor Sanjay Malhotra, according to an official press release issued on Thursday. 

The approval follows the RBI’s October proposal to introduce a deposit insurance premium structure linked to the risk profile of banks. 

Shift From Uniform Premium Structure 

At present, banks pay a uniform premium for deposit insurance, regardless of differences in financial strength or risk levels.  

Under the risk-based framework, premiums are expected to vary based on parameters such as asset quality, capital adequacy, and overall risk exposure. 

Such models are used in several banking systems globally to align insurance costs with underlying risk and reduce cross-subsidisation between banks. 

Economic Review 

During the meeting, the Board also discussed the global and domestic economic situation. Members reviewed ongoing macroeconomic conditions and challenges, including developments affecting financial markets and the banking sector. 

No specific policy measures were announced following these discussions. 

Banking Sector Report Reviewed 

The Board examined the draft Report on Trend and Progress of Banking in India, 2024-25. The report provides an annual assessment of developments in the banking system, including balance sheet trends, regulatory changes, and sector-wide performance indicators. 

In addition, the Board reviewed the functioning and activities of select departments at the RBI’s central office. 

Attendance at the Meeting 

The meeting was attended by Deputy Governors T Rabi Sankar, Swaminathan J, Dr Poonam Gupta, and Shirish Chandra Murmu. Nagaraju Maddirala, Secretary in the Department of Financial Services, was also present. 

Other members of the Central Board who attended included Satish K Marathe, Revathy Iyer, Pankaj Ramanbhai Patel, and Dr Ravindra H Dholakia. 

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Conclusion 

The Board’s approval clears the way for the introduction of a risk-based approach to deposit insurance premiums in India’s banking system. Further details on the framework, including timelines and implementation mechanics, are expected to be outlined once formal guidelines are issued. 

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