Risk-based deposit rules may dent bank profits by up to ₹12k cr: ICRA

ICRA says the new risk-based deposit insurance premium framework, effective April 2026, could reduce bank profitability by up to ₹12,000 crore a year, though stronger banks may see gains

Even as the new risk-based deposit framework will increase the insured deposit base and premium payouts, it is expected to impact banking system profitability by ₹2,000–12,000 crore, dragging the return on assets (RoA) by 1–4 basis points (bps), ICRA said in its report. However, stronger lenders receiving discounted premium rates will be able to offset the impact.

 

Deposit Insurance and Credit Guarantee Corporation (DICGC), with the approval of the RBI, is going to implement the Risk Based Premium (RBP) framework with effect from 1 April 2026. Since inception, DICGC has been levying a flat rate premium, last revised in April 2020 to ₹0.12 per ₹100 of assessable deposits on all banks. However, it will now move to a differential pricing framework.

 

The new framework will primarily categorise banks based on their risk scores as per the internal rating methodology of DICGC and will provide additional benefits based on their track record of number of claims, restructuring or major distress. Accordingly, stronger banks with better risk scores will pay less, while banks with lower risk scores will pay more. As per the rate card, the maximum benefit based on risk scoring will be 33.33 per cent of the current card rate. Besides, the vintage incentive will be a maximum of 25 per cent.

 

The framework will give stronger banks a slight cost advantage over weaker banks and will also encourage banks to adopt good risk management practices, making the banking system safer.

 

As per ICRA’s analysis, based on a normalised cost structure, the return on assets of stronger banks with a long operational history of no claims will witness an enhancement of 4 bps because of the discounted insurance premium card rate.

 

Further, banks contributing around 80 per cent to the sector’s deposit base are likely to enjoy high discounts and hence lower premium rates on their insured deposit base. Thus, the entire banking sector is expected to enjoy an RoA improvement of around 3 bps compared to the maximum 4 bps advantage for stronger banks on an individual basis.

 

Further, according to ICRA’s analysis, among the public sector banks, those that were not part of the Prompt Corrective Action (PCA) framework contribute nearly 54 per cent to the sector’s total deposit base and many of these are likely to obtain high risk scores and thus be eligible for a higher discount under the framework. In the case of private sector banks (PVBs), the top four of them contribute around 27 per cent to the sector’s total deposit base and are likely to obtain high risk scores and thus be eligible for a higher discount.

 

In the past decade, several public sector lenders were placed under the RBI’s PCA framework. While some of them have already been merged with larger PSBs, the rest exited the PCA framework by the end of FY21. Thus, the PSBs that exited the PCA will be able to get the vintage incentive only from FY22, thereby limiting the discount to the insurance premium rate card.

 

Assessable deposits worth ₹100.05 trillion were insured by DICGC, with the insured deposit–assessable deposit ratio (IDR) being at 41.5 per cent as on 31 March 2025, compared to 43.1 per cent as on 31 March 2024. In the past few years, deposit insurance claims have largely been filed by cooperative banks, which had a comparatively higher IDR of 61.9 per cent as on 31 March 2025.