RBI to compensate digital fraud victims up to ₹25,000, even if OTP was shared

The Reserve Bank of India (RBI) has proposed a major consumer-friendly measure to cushion victims of digital fraud, announcing plans to compensate customers up to ₹25,000 per case for losses arising from small-value fraudulent transactions — even in cases where the victim has shared a one-time password (OTP).

Unveiling the proposal, RBI Governor Sanjay Malhotra said nearly 65% of digital fraud cases involve amounts below ₹50,000, underscoring the need for a swift and humane compensation framework.

“It is proposed to introduce a framework to compensate customers up to ₹25,000 for losses incurred in small-value fraudulent transactions,” Malhotra said. “As long as the loss is unintended and the customer has been defrauded — whether on their own accord or otherwise — no questions asked, compensation of ₹25,000 or 85 per cent of the loss amount will be provided.”

One-time lifetime benefit for fraud victims

Under the proposed framework, a customer will be able to avail the compensation only once in their lifetime for losses caused by such frauds. Crucially, the relief will extend to cases where the customer may have shared an OTP, a move that significantly relaxes earlier norms that placed greater liability on users.

In certain fraud cases, the RBI plans to compensate 70 per cent of the loss, with the remaining 30 per cent shared between the customer and the bank, Malhotra said, adding that a detailed discussion paper would be released for public consultation.

Compensation to be funded from RBI’s surplus pool

RBI Deputy Governor Swaminathan J said the payouts will be made from the Deposit Education and Awareness Fund, which includes unclaimed deposits and has accumulated substantial surplus income over time.

“We have adequate surplus in the fund accrued over a period of time, and that may be used for this purpose,” he said.

Mis-selling, loan recovery, customer liability under scrutiny

As part of a broader push to strengthen customer protection, the RBI also announced that it will issue three separate draft guidelines for public consultation. These will address:

• Mis-selling of financial products, to ensure transparency and accountability;
• Loan recovery practices, including conduct of recovery agents, to curb harassment and unfair treatment;
• Limiting customer liability in unauthorised electronic banking transactions.

Safer digital payments in focus

In addition, the central bank will release a discussion paper outlining steps to enhance the safety and security of digital payments. Proposed measures include lagged credits, allowing time for verification before funds are credited, and additional authentication safeguards for vulnerable users such as senior citizens.

Together, these initiatives are expected to boost consumer confidence, reinforce accountability within the banking system, and make India’s rapidly expanding digital payments ecosystem safer and more resilient.