The Central Board of the RBI approved the risk-based deposit insurance premium framework.
- It will replace the current flat-rate system (of 12 paise per Rs 100 deposit).
- The main objective of deposit insurance is to protect depositors' money against bank failure.
What is a risk-based deposit insurance premium framework?
- In it, the insurance premium charged to banks depends upon their risk profile.
- Safer, well-managed banks pay lower premiums; riskier banks pay higher premiums.
- Objective
- To incentivise sound risk management and reward prudent behavior with lower costs.
- Reduce moral hazard by discouraging banks from taking excessive risks.
Deposit Insurance Framework in India
- Managed by Deposit Insurance and Credit Guarantee Corporation (DICGC)
- DICGC works in accordance with the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961.
- It is a wholly owned subsidiary of the RBI.
- Maximum Insurance Coverage is ₹5 lakh.
- Insurance premium is paid by banks, not depositors.
- DICGC insures all deposits such as savings, fixed, current, recurring, etc. deposits except the deposits of foreign Governments, Central/State Governments, etc.
- Insurance coverage includes: All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks, All State, Central and Primary cooperative banks but it excludes primary co-operative societies.