The Reserve Bank of India (RBI) has proposed a framework to partly compensate victims of small-value digital payment fraud. Under the proposal, customers could receive partial reimbursement even if they were partly responsible, though the benefit may be limited to a capped, one-time claim.
Mint explains how the compensation mechanism could work and why the central bank believes a shared liability framework is needed.
What has the RBI proposed to compensate digital fraud victims?
RBI has proposed a framework to compensate victims of small-value digital payment fraud, even in cases where the customer may have been partly negligent. The draft guidelines allow partial reimbursement for transactions of up to ₹50,000, with victims potentially receiving up to 85% of the loss or ₹25,000, whichever is lower. However, the benefit may be available only once in a lifetime for each customer.
The idea is to create a structured compensation mechanism in which the financial burden is shared among the issuing bank, the receiving bank and potentially the regulator, ensuring quicker relief for customers who fall prey to cyber fraud.
When will customers qualify for compensation?
The compensation mechanism targets cases where fraud occurs despite some degree of customer negligence. The RBI defines this as situations where a customer may have unknowingly shared credentials or been tricked into transferring money.
According to the draft guidelines, customer negligence includes actions such as “providing credentials such as PIN, password, OTP or other details…to another person” or “downloading malicious apps.” Even in such cases, victims may qualify for partial compensation if they report the fraud quickly.
However, customers must notify the bank and the National Cyber Crime Helpline or portal within five calendar days for the claim to be eligible.
Who will pay for the compensation?
The RBI’s framework distributes the financial burden across the payment ecosystem. In certain cases, the central bank itself will contribute to the compensation amount along with the issuing bank and the beneficiary bank.
For instance, if compensation of ₹25,000 is paid, the RBI will contribute ₹19,118, while the customer’s bank and the beneficiary bank will contribute ₹2,941 each. For smaller fraud losses, the RBI may bear up to 65% of the compensation, according to the draft rules.
“If the customer loses the money, no questions asked as long as they have lost the money. We are making checks to ensure that is not malified, so there are checks in the system to ensure that and that's why we have kept the amount very small,” RBI governor Sanjay Malhotra had said in the February policy meeting.
He had said that there is skin in the game for the customer at 15% and for the banks as well at 15% and remaining amount the central bank will provide. “This actually means a lot for small customers. This is a way of providing some immediate relief and solace to them.”
Will the new framework help reduce digital fraud?
The proposal is seen as a positive step for consumer protection, but experts say its effectiveness will depend on implementation.
“Allowing compensation for small-value frauds, even where there is some customer negligence, is a welcome move. However, the real test will be in implementation, because despite awareness campaigns, digital fraud incidents continue to rise and fraudsters are becoming increasingly sophisticated in using social engineering tactics,” Manu Zacharia, chief executive officer at HackIT Technology and Advisory Services said.
Fraudsters increasingly study victims’ behaviour and vulnerabilities before launching scams. As a result, regulators are trying to balance consumer protection with incentives for customers to remain vigilant while using digital banking channels, he said.
How big is the digital fraud problem in India?
Digital payment fraud has been a persistent concern. According to RBI’s report on Trend and Progress of Banking in India, banks reported 13,469 fraud cases in card and internet transactions in 2024-25, compared with 27,663 cases in 2023-24. These figures include frauds of ₹1 lakh and above reported by banks.
The data highlights the risks that accompany India’s rapid shift to digital payments and explains why the central bank is considering stronger consumer protection and compensation mechanisms for victims of online fraud.