India shifts deposit insurance to risk-based premiums
Change
From April 1, banks in India will pay risk-based deposit insurance premiums instead of a uniform flat fee.
Why it matters
The Deposit Insurance and Credit Guarantee Corporation will implement risk-based premiums from April 1. Banks will be assessed using financial and supervisory indicators including capital strength, asset quality, earnings, liquidity, and potential loss to the deposit insurance fund. Two assessment models apply: a Tier 1 model for scheduled commercial banks (excluding regional rural banks) and a Tier 2 model for regional rural and cooperative banks. Premium adjustments are capped at 33.33% over the card rate, and a vintage incentive of up to 25% can reduce the effective premium for longer contributions without major claim payouts.
Implications
- • Deposit-insurance costs will vary according to assessed capital strength, asset quality, earnings, liquidity, and potential loss to the fund.
- • Premium adjustments are contractually limited to 33.33% above the card rate.
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