The Reserve Bank of India ( RBI) on Wednesday proposed four key measures aimed at enhancing the resilience and competitiveness of India’s banking sector, with risk-based deposit insurance premiums taking centre stage.
Risk-based deposit insurance premium: Under the new proposal, banks will move from the current flat-rate deposit insurance premium to a risk-based system, where better-rated banks pay lower premiums. RBI said this will incentivise sound risk management and strengthen overall financial stability.
Also Read: RBI MPC Meeting 2025-26 Key Takeaways: Check all announcements made by Malhotra & co
ECL framework: The central bank also proposed applying the Expected Credit Loss (ECL) provisioning framework with prudential floors to all scheduled commercial banks (excluding Small Finance Banks, Payment Banks, and Regional Rural Banks) and All India Financial Institutions (AIFIs) from April 1, 2027. A glide path till March 31, 2031, will help banks manage any one-time impact from higher provisioning on existing loans.
Revised Basel III norms: Additionally, RBI planned to implement revised Basel III capital adequacy norms for commercial banks from April 2027. A draft on the standardised approach for credit Risk will be issued soon. Under the proposed norms, lower risk weights for certain sectors, particularly MSMEs and residential real estate including home loans, are expected to reduce overall capital requirements.
Also Read: RBI MPC keeps repo rate unchanged at 5.5%; growth and inflation projections revised
Regulations related to investment: The central bank also finalised guidelines on forms of business and prudential regulation for investments after public consultations. The proposed restriction on overlap in business between a bank and its group entities has been removed, leaving strategic allocation of business streams to bank boards.
“These measures align our regulatory framework with international standards, adapted to India’s national priorities, and strengthen capital adequacy for banks and financial institutions,” the RBI said.
The announcements were made alongside key decisions of the three-day Monetary Policy Committee meeting, which kept the repo rate unchanged at 5.5% and retained a neutral stance.
Risk-based deposit insurance premium: Under the new proposal, banks will move from the current flat-rate deposit insurance premium to a risk-based system, where better-rated banks pay lower premiums. RBI said this will incentivise sound risk management and strengthen overall financial stability.
Also Read: RBI MPC Meeting 2025-26 Key Takeaways: Check all announcements made by Malhotra & co
ECL framework: The central bank also proposed applying the Expected Credit Loss (ECL) provisioning framework with prudential floors to all scheduled commercial banks (excluding Small Finance Banks, Payment Banks, and Regional Rural Banks) and All India Financial Institutions (AIFIs) from April 1, 2027. A glide path till March 31, 2031, will help banks manage any one-time impact from higher provisioning on existing loans.
Revised Basel III norms: Additionally, RBI planned to implement revised Basel III capital adequacy norms for commercial banks from April 2027. A draft on the standardised approach for credit Risk will be issued soon. Under the proposed norms, lower risk weights for certain sectors, particularly MSMEs and residential real estate including home loans, are expected to reduce overall capital requirements.
Also Read: RBI MPC keeps repo rate unchanged at 5.5%; growth and inflation projections revised
Regulations related to investment: The central bank also finalised guidelines on forms of business and prudential regulation for investments after public consultations. The proposed restriction on overlap in business between a bank and its group entities has been removed, leaving strategic allocation of business streams to bank boards.
“These measures align our regulatory framework with international standards, adapted to India’s national priorities, and strengthen capital adequacy for banks and financial institutions,” the RBI said.
The announcements were made alongside key decisions of the three-day Monetary Policy Committee meeting, which kept the repo rate unchanged at 5.5% and retained a neutral stance.
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