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What is the story about?
Large banking stocks — across both private and public sector — have come into focus in February as investors price in a structural change in deposit insurance premiums that will take effect from April 1, 2026.
The shift is expected to lower costs for stronger banks, lift profitability, and influence earnings estimates for FY27 — making it a key theme for bank stocks in the near term.
At the same time, strong quarterly results from State Bank of India (SBI) have added momentum to the sector, reinforcing the view that earnings — not just policy changes — will drive the next leg of gains.
What exactly is changing?
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is moving away from a flat, decades-old pricing model to a risk-based premium system.
Since 1962, all banks have paid a uniform premium of 12 paise per ₹100 of assessable deposits, regardless of their financial health.
From April 1, 2026, premiums will vary based on each bank’s risk profile, determined by supervisory ratings, capital adequacy, asset quality, liquidity, and profitability. Some well-established banks may also receive a “vintage” discount.
New DICGC premium structure
Why this matters for banking stocks
Most large private banks — and a few stronger PSU banks — are expected to fall in Category A or B, meaning they will pay materially lower premiums than before.
Analysts estimate this could:
Because deposit insurance costs form a meaningful share of bank expenses, even small reductions can translate into visible profit gains — a key reason investors are watching this closely.
How big are these costs today?
In FY25, DICGC premiums formed a noticeable chunk of operating expenses for several banks:
Impact on private banks vs PSU banks
Large private banks (HDFC Bank, ICICI Bank, Axis Bank, Kotak) are widely expected to land in A or B categories, implying clear cost savings.
PSU banks may also benefit if they secure higher ratings, but analysts believe the biggest near-term gains will accrue to well-capitalised banks with cleaner balance sheets and strong liquidity profiles — many of which are private.
So this is not just a PSU story — it is a sector-wide earnings catalyst.
SBI rally adds fuel to banking stocks
Beyond the DICGC change, SBI shares have been a standout performer, lifting overall sentiment toward banking stocks.
On February 6, SBI emerged as the top gainer on the Nifty 50, rising 6% — its biggest single-day jump since June 2024 — after a strong Q3 update.
What drove SBI’s surge?
SBI reported a 24% YoY rise in net profit in the December quarter and outperformed private peers on key metrics:
Street consensus suggests SBI could rise to ₹1,189.38, about 11% upside from recent levels. The stock is already up 44% in the last year.
Motilal Oswal’s Nitin Aggarwal even said SBI could outshine the growth of the top three private banks in the coming period.
The shift is expected to lower costs for stronger banks, lift profitability, and influence earnings estimates for FY27 — making it a key theme for bank stocks in the near term.
At the same time, strong quarterly results from State Bank of India (SBI) have added momentum to the sector, reinforcing the view that earnings — not just policy changes — will drive the next leg of gains.
What exactly is changing?
The Deposit Insurance and Credit Guarantee Corporation (DICGC) is moving away from a flat, decades-old pricing model to a risk-based premium system.
Since 1962, all banks have paid a uniform premium of 12 paise per ₹100 of assessable deposits, regardless of their financial health.
From April 1, 2026, premiums will vary based on each bank’s risk profile, determined by supervisory ratings, capital adequacy, asset quality, liquidity, and profitability. Some well-established banks may also receive a “vintage” discount.
New DICGC premium structure
| Category | New premium | Change vs earlier |
| A | 8 paise | 33.3% cut |
| B | 10 paise | 16.7% cut |
| C | 11 paise | 8.3% cut |
| D | 12 paise | No change |
Why this matters for banking stocks
Most large private banks — and a few stronger PSU banks — are expected to fall in Category A or B, meaning they will pay materially lower premiums than before.
Analysts estimate this could:
- Reduce operating expenses by 1.5–3% in FY27
- Boost earnings by 1–2%, depending on final ratings and deposit base
Because deposit insurance costs form a meaningful share of bank expenses, even small reductions can translate into visible profit gains — a key reason investors are watching this closely.
How big are these costs today?
In FY25, DICGC premiums formed a noticeable chunk of operating expenses for several banks:
| Bank | DICGC as % of operating expenses |
| Bank of Baroda | 5.30% |
| Canara Bank | 6.00% |
| SBI | 4.60% |
| HDFC Bank | 4.10% |
| ICICI Bank | 4.00% |
| Axis Bank | 3.30% |
| Kotak Mahindra Bank | 2.90% |
| IDFC First Bank | 1.50% |
Impact on private banks vs PSU banks
Large private banks (HDFC Bank, ICICI Bank, Axis Bank, Kotak) are widely expected to land in A or B categories, implying clear cost savings.
PSU banks may also benefit if they secure higher ratings, but analysts believe the biggest near-term gains will accrue to well-capitalised banks with cleaner balance sheets and strong liquidity profiles — many of which are private.
So this is not just a PSU story — it is a sector-wide earnings catalyst.
SBI rally adds fuel to banking stocks
Beyond the DICGC change, SBI shares have been a standout performer, lifting overall sentiment toward banking stocks.
On February 6, SBI emerged as the top gainer on the Nifty 50, rising 6% — its biggest single-day jump since June 2024 — after a strong Q3 update.
What drove SBI’s surge?
SBI reported a 24% YoY rise in net profit in the December quarter and outperformed private peers on key metrics:
- Loan growth better than ICICI Bank and HDFC Bank
- Stable net interest margin (NIM) at ~3%
- Strong asset quality with recoveries supporting profitability
- RoA above 1% and RoE above 20% — considered very healthy for a large PSU bank
Street consensus suggests SBI could rise to ₹1,189.38, about 11% upside from recent levels. The stock is already up 44% in the last year.
Motilal Oswal’s Nitin Aggarwal even said SBI could outshine the growth of the top three private banks in the coming period.
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