Context: The Reserve Bank of India (RBI) has proposed a compensation framework for victims of small-value digital frauds, aiming to restore trust in digital payments and strengthen consumer protection. The proposal focuses on fraud cases up to ₹50,000, which account for nearly 65% of all digital fraud incidents.
Key Features of the Proposed Compensation Framework
The scheme provides compensation for eligible victims of digital fraud up to ₹25,000, or 85% of the loss, whichever is lower. This design ensures meaningful relief while preventing misuse.
A major reform is the inclusion of cases involving inadvertent credential sharing, provided the act was not mala fide. Earlier liability rules often excluded compensation when negligence was involved. This reflects a more citizen-friendly approach, recognising that fraudsters increasingly use deception-based tactics such as phishing and fake customer care calls.
To discourage habitual carelessness, the relief will be available only once per customer, creating a balance between protection and accountability.
Liability Sharing: “Skin in the Game” Model
The proposed framework distributes the financial burden among stakeholders:
- Customer: Bears 15% of the loss as a deductible, encouraging continued vigilance.
- Bank: Contributes a proposed ~15%, incentivising stronger cybersecurity and fraud detection systems.
- RBI: Covers the remaining ~70% through a central fund, subject to the compensation cap.
This approach ensures shared responsibility rather than shifting the entire cost to one entity.
Funding through the Depositor Education and Awareness (DEA) Fund
Compensation payouts will be financed through the Depositor Education and Awareness (DEA) Fund, which currently holds a surplus of around ₹85,000 crore.
About the DEA Fund
- Established by RBI in 2014 under Section 26A of the Banking Regulation Act, 1949.
- Banks transfer balances of unclaimed/inoperative accounts for 10+ years into the fund.
- Depositors retain the right to reclaim their money with interest; transfer does not extinguish ownership.
- RBI pays interest on the transferred amount, which banks must pass to depositors upon settlement.
- The fund is primarily meant for depositor awareness programmes, but is now proposed to support fraud compensation.
RBI has also launched the UDGAM portal, enabling citizens to search unclaimed deposits across banks, improving transparency.
Significance of the Proposal
The framework can strengthen confidence in digital transactions, particularly for small users, senior citizens, and first-time digital adopters. It also aligns with India’s push for a secure digital economy under UPI-based payments and fintech expansion.
Conclusion
RBI’s proposed compensation mechanism is a major step towards consumer-centric digital governance. If implemented effectively, it can reduce financial distress from small frauds while promoting stronger banking security and responsible user behaviour.