Let risk exposure decide deposit insurance rates

A shift to risk-based insurance of bank deposits from a flat-rate framework would not only be logical, it could also help lift today’s veil of secrecy around the financial health of banks

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It is heartening that the Reserve Bank of India (RBI) has decided to adopt a risk-based framework for deposit insurance to replace a one-size-fits-all one which does not distinguish between banks on the basis of their individual risk profiles. This decision was taken on Friday and it follows RBI's monetary policy statement of October 2025, in which the central bank had proposed a model that abandons a flat premium rate in favour of payments that vary by risk—in this case, of a regular bank failing to meet its obligations to depositors.

With this shift slated to come into effect from 2026-27, financially sound banks can expect to save on the price they pay. In general, it should incentivize banks to manage their risks better, thereby improving the overall soundness of India’s banking industry.