The Reserve Bank of India (RBI) is introducing a system where the deposit insurance premiums paid by banks will be determined by their risk profiles.

The new system, set to reward those banks which manage their risks better, will come into effect from 1 April. 

The stronger banks will need to pay lower premiums, enjoying a discount of up to 33.3% based on their risk gradings with 8 paise per Rs 100 being the lowest.

For a longer contribution to the deposit insurance fund without major claim payouts, banks may also receive a “vintage” incentive of up to 25%.

Under the existing system, all banks, regardless of their risk profiles, are required to pay the same premium of 12 paise for every Rs 100 of assessable deposits. 

The deposit insurance and credit guarantee corporation (DICGC) has been operating under a flat premium deposit insurance system since 1962.

Under the proposed system, banks will be assessed based on audited financial data and supervisory indicators such as capital strength, asset quality, earnings and liquidity. It will also assess the potential loss their failure could impose on the deposit insurance fund, the RBI said.

Banks will be categorised under four groups - A, B, C and D, with the spectrum ranging from 8 paise per 100 of deposits and 12 paise. 

The RBI has introduced a Tier 1 risk model for scheduled commercial banks and a Tier 2 model for regional rural banks and cooperative banks.

The RBI said payments banks and local area banks will continue to pay the card premium rate due to data limitations. The urban cooperative banks under supervisory or corrective action will be brought under the new framework after exiting such restrictions.