RBI must reform deposit insurance rates

Calibrating premiums to actual risk will empower banks, protect depositors, and accelerate economic momentum by reducing cost of doing business

- TV MOHANDAS PAI NISHA HOLLA

RESERVE BANK OF INDIA (RBI) Governor Sanjay Malhotra has announced India's move towards international best practices that reward sound risk management.

Nowhere is reform more urgent than in the Deposit Insurance and Credit Guarantee Corporation (DICGC), which has long overcharged well-operated commercial banks on premiums, amassing a surplus of ₹2.1 lakh crore. This excess is unnecessary and inflates India's cost of doing business. The RBI's proposal to introduce risk-based deposit insurance must be implemented without delay.

The DICGC,a wholly-owned RBI subsidiary, insures deposits across banks.As of March, it covered 1,982 banks-139 commercial and 1,843 cooperative.In FY25,it collected ₹26,764 crore in premiums and earned ₹15,802 crore in investment income, generating a revenue surplus of ₹30,907 crore.Against an actuarial liability of ₹17,567 crore, its surplus stands at ₹2.11 lakh crore, with total funds of ₹2.29 crore-2.3% of total insured deposits.

The question is simple: why collect such excessive premiums, and why not link them to risk? These costs are passed on to customers, firms, and micro, small, and medium enterprises, thereby burdening citizens with higher business costs.

Insurance premiums rose from 5p per ₹100 insured in 1962 to 12p in 2020, applied to all deposits up to ₹5 lakh per person. This premium is uniformly applied, irrespective of whether the bank is commercial or cooperative, despite the vastly differing risk profiles, credit ratings, and management structures.