Customers to get safety net against small cyber frauds

RBI Unveils Compensation Shield for Cyber Fraud Victims

In a major boost for digital payment users, the Reserve Bank of India has proposed a new framework to compensate customers who fall victim to small-value cyber frauds. Under this initiative, affected individuals could receive up to ₹25,000, marking a significant step towards enhancing consumer protection in an era of rapid digitalization. The announcement came during a recent monetary policy address by RBI Governor Sanjay Malhotra, highlighting the central bank's commitment to safeguarding everyday users from the growing menace of online scams.

This safety net is particularly timely as cyber fraud losses have skyrocketed in recent years, surging nearly tenfold to over ₹22,000 crore in 2024 from much lower figures just a couple of years prior. Small-value frauds, typically under ₹50,000, make up a substantial portion—around two-thirds—of all such incidents, often catching ordinary people off guard through tactics like phishing or OTP sharing. The proposed payout would cover the lower of 85% of the loss or ₹25,000, and it's designed as a one-time benefit per customer to encourage vigilance after the first mishap.

Governor Malhotra emphasized that compensation would be provided without blame, even in cases where users inadvertently share sensitive details like one-time passwords. "As long as customers are defrauded, whether due to their own action or otherwise—no questions asked, we will compensate them up to ₹25,000 or 85% of the loss, whichever is lower," he stated, underscoring the RBI's compassionate approach.

This no-questions-asked policy aims to offer immediate relief, with the remaining burden shared equally between the customer, the bank, and the RBI's Depositor Education and Awareness Fund.

Details of the Proposed Framework and Eligibility

The framework revises the RBI's 2017 guidelines on customer liability for unauthorized electronic transactions, accounting for the explosive growth in digital banking since then. Compensation applies strictly to unintentional frauds in small-value digital transactions, ensuring it's not a free pass for negligence but a genuine support for first-time victims. For example, if someone loses ₹20,000 to a scam, they could get ₹17,000 back, calculated as 85% of the amount. In a ₹50,000 loss scenario, the cap at ₹25,000 kicks in, providing substantial but not full recovery.

Importantly, this benefit is once-in-a-lifetime per account holder, pushing users to adopt better security habits post-incident. Banks and customers each bear 15% of the loss in some models, fostering shared responsibility. The RBI plans to issue draft instructions soon for public consultation, allowing stakeholders to weigh in before finalization. This consultative process reflects the central bank's effort to balance protection with practicality.

Beyond compensation, the RBI is rolling out additional safeguards. These include a discussion paper on bolstering digital payment security, potentially featuring lagged credits—delaying fund transfers for scrutiny—and extra authentication layers for vulnerable groups like senior citizens. Such measures address the unique risks faced by less tech-savvy users in a landscape where over 86% of households now have internet access.

Broader Consumer Protection Measures and Rising Threats

The cyber fraud shield is part of a trio of draft guidelines from the RBI. The others target mis-selling of financial products, where banks push unsuitable loans or insurance, and standardize rules for loan recovery agents to curb harassment complaints. Currently, different institutions follow varying norms, leading to inconsistencies; the new harmonized rules aim to ensure fair practices across the board. These steps signal a holistic push against multiple pain points in banking.

India's digital boom, fueled by initiatives like Digital India, has supercharged financial inclusion but also amplified cyber risks. Low digital literacy leaves many susceptible to scams involving weak passwords, unverified apps, or phishing emails. Government bodies like the Indian Cybercrime Coordination Centre have blocked thousands of fraudulent accounts, yet incidents persist. The RBI's interventions come as a national priority, with agencies like CERT-In issuing advisories and conducting drills to build resilience.

By introducing this safety net, the RBI not only eases the immediate financial sting for victims but also builds trust in digital platforms. This could spur even higher transaction volumes, benefiting the economy while nudging users towards safer behaviors. Financial experts see it as a pragmatic 'skin in the game' model, where all parties—regulator, bank, and customer—contribute to mitigation.

In summary, the RBI's ₹25,000 compensation framework, alongside guidelines on mis-selling and recovery practices, promises stronger defenses against cyber frauds and other banking woes. It offers reassurance to millions relying on digital payments, potentially reducing the human and economic toll of scams in India's evolving financial ecosystem.