Deposit insurance inherently creates a moral hazard i.e. the parties to the deposit insurance viz. a bank and its insured depositors get an incentive to take more risk because the costs of risk, in whole or in part, are borne by others, generally a deposit insurance agency, in our case the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Most deposit insurance systems initially adopt an ex-ante flat-rate premium system because they are relatively simple to design, implement and administer. However, these systems were open to criticism in that they do not reflect the level of risk that banks pose to the deposit insurance system.