Risk-Based Premiums for Deposit Insurance: Ensuring Financial Stability

Reserve Bank Deputy Governor Swaminathan J emphasized the implementation of risk-based premiums for deposit insurance as a measure to enhance financial stability. He advocated for deposit insurers to collaborate closely with regulators, update frameworks for emerging risks, and adopt proactive measures like supervisory ratings and contingency planning.

In a keynote address at a high-profile conference, Reserve Bank Deputy Governor Swaminathan J declared that implementing risk-based premiums for deposit insurance deserves serious consideration. He argued that such a move would ensure institutions with higher risk profiles make greater contributions to the insurance fund, thus bolstering financial stability.

Swaminathan also underscored the importance of deposit insurers working closely with regulators to adapt oversight mechanisms to the evolving digital landscape. This includes incorporating risks linked to digital payments, cybersecurity, and fintech innovations into regulatory frameworks. Proactive measures like supervisory rating assessments should guide insurance premiums and intervention strategies, he noted.

Stressing the need for crisis preparedness, the deputy governor urged deposit insurers to develop comprehensive contingency plans for technology-induced disruptions. Regular stress tests and simulations to evaluate the impact of cyber incidents or fintech failures on the financial system were also recommended.

(With inputs from agencies.)