RBI plans to compensate victims of fraud transactions: What we know of the scheme so far

The Reserve Bank of India (RBI), last week, announced the broad outline of what could be among its most novel citizen-centric schemes. In his address post the Monetary Policy Committee meeting on February 6, RBI Governor Sanjay Malhotra said the central bank intends to put in place a framework that will govern how people are compensated for losses from fraudulent, small-value transactions. According to data provided by the Ministry of Home Affairs in response to a Parliament question on Wednesday, the number of financial fraud complaints on the National Cyber Crime Reporting Portal jumped 25% in 2025 to 24.03 lakh. What we know so far Not all such complaints may be covered by the RBI’s compensation scheme. What we know so far about this yet-to-be-released framework is as follows. One: the total compensation will be capped at Rs 25,000 or 85% of the fraud value, whichever is lower. As such, the defrauded person will have to bear at least 15% loss. Two: The RBI itself will stump up 70% of the defrauded amount, with banks providing the remaining 15%. Three: The framework will bring relief even to those who shared their One-Time Password (OTP) to fraudsters and ended up losing money. This is a huge departure from the present: it is well-nigh impossible for people to recover money if they inadvertently share an OTP with scammers as this password, usually a six-digit number, authorises the transaction in question. This is why banks repeatedly warn their customers to not share their OTPs and other sensitive banking information with anyone, including people who claim to be a bank representative. Four: the scheme will be “no questions asked” and a one-time measure. So, people getting scammed repeatedly will not keep getting compensated. “We want that after making a mistake once, the customer becomes alert and rectifies his mistake. A mistake can be forgiven once and that mistake can be reimbursed. That is why we have set a limit of one time and that is for lifetime, not annual. While a person should learn from other people’s mistakes, but if they don’t, then at least (they will) learn from one’s own mistakes,” the RBI Governor explained on February 6. Logic and numbers On the face of it, the RBI’s proposed compensation scheme is a monumental exercise. According to the central bank’s latest annual report, 13,516 cases of card and internet frauds were reported in the banking sector in 2024-25 involving Rs 520 crore. This marked a sharp decline from 2023-24, which saw 29,082 cases worth Rs 1,457 crore. However, this data is only for frauds involving sums of Rs 1 lakh or more; small-value frauds are far more common. And the compensation framework is not for large frauds. According to RBI Deputy Governor Swaminathan J, while small-value frauds account for more than two-third of the number of frauds, they make up less than 15% of the total amount in rupee terms. Therefore, even by capping the compensation at Rs 25,000, the RBI will be able to provide relief to a large number of victims. Governor Malhotra pointed out that 65% of frauds involve sums smaller than Rs 50,000. While card and internet frauds of Rs 1 lakh or more may have reduced in 2024-25, small-value ones, committed via the Unified Payments Interface (UPI) for instance, are on the up. UPI frauds an indicator In 2024-25, there were 12.64 lakh UPI fraud incidents worth Rs 981 crore. While this was down from 13.42 lakh cases involving Rs 1,087 crore in 2023-24, 2025-26 is on track to be a worse year. As per data provided by the Ministry of Finance in response to a Parliament question in December 2025, the first eight months of 2025-26 saw 10.64 lakh UPI frauds worth Rs 805 crore. Assuming frauds are committed at the same rate in the final four months of the year, 2025-26 could see the number of cases rise to almost 16 lakh and involve more than Rs 1,200 crore. And these are just UPI-related frauds. If one were to count all payment-related frauds reported by banks and non-bank issuers of credit cards and pre-paid instruments, the number of cases surged 42% in 2023-24 to 28.22 lakh, with the total amount involved up 74% at Rs 4,403 crore. Going by data for the first 10 months of 2024-25, the numbers recorded in 2023-24 were likely exceeded, as per data submitted by the Ministry of Finance to the Parliament in March 2025. Tellingly, the average size of these payments frauds is rising: Rs 12,723 in 2022-23, Rs 15,602 in 2023-24, and Rs 17,769 in 2024-25. This makes the RBI’s Rs 25,000 limit fairly reasonable. A one-time compensation scheme is also important because of how little money is recovered. While data on UPI fraud recoveries is unavailable, that for card and internet banking cases of Rs 1 lakh or more provides an indication. In 2023-24, which saw 29,082 cases worth Rs 1,457 crore, only Rs 139 crore was recovered. ## Unanswered questions in the RBI scheme With very few details available so far on the RBI’s fraud compensation framework, plenty of questions remain. But two important ones are: will the framework apply retrospectively or only for frauds that occur once the guidelines are in place? And, where will the central bank get the money to compensate the victims? For the RBI, a few thousand crores is a drop in its vast ocean of financial resources: for 2024-25, the central bank had a total income of Rs 3.38 lakh crore and transferred a dividend of Rs 2.69 lakh crore to the central government. But that doesn’t mean it can refund all fraud claims from its earnings. RBI officials have said its Depositor Education and Awareness Fund may be used. Clarity on this, among other aspects, is awaited. Siddharth Upasani is a Deputy Associate Editor with The Indian Express. He reports primarily on data and the economy, looking for trends and changes in the former which paint a picture of the latter. Before The Indian Express, he worked at Moneycontrol and financial newswire Informist (previously called Cogencis). Outside of work, sports, fantasy football, and graphic novels keep him busy. ... Read More