The Reserve Bank of India (RBI) on Friday proposed a framework to compensate bank customers for losses arising from small value fraudulent transactions, offering relief of up to ₹25,000 per account holder.

The move comes against a sharp surge in cyber fraud losses, which have risen nearly tenfold over three years to ₹22,845.73 crore in 2024 from ₹2,290.24 crore in 2022, according to a government disclosure in the Lok Sabha in December 2025. According to the RBI’s estimates, around two-thirds of digital frauds are under ₹50,000 in amount.

While the draft guidelines are yet to be released, Malhotra told reporters on Friday that the compensation would be available only once to a bank account holder.

He added that the payout would be capped at the lower of 85 per cent of the loss amount or ₹25,000. This implies that if an account holder suffers a loss of ₹50,000, 85 per cent of the amount works out to ₹42,500, but the compensation would be limited to ₹25,000. In the case of a loss of ₹20,000, 85 per cent equals ₹17,000, which would be paid as compensation.

Malhotra clarified that compensation would be provided as long as the fraud is identified as unintentional. A customer will also be paid compensation even in cases where OTP is inadvertently shared.

“If they (account holders) are defrauded whether on their own accord or anyone else’s, no questions asked, we will compensate as long as it is unintended and they have lost the money,” the governor said. He also underlined that the one-time limit is intended to encourage greater customer vigilance after an initial incident.

RBI deputy governor Swaminathan J said that the money is likely to be paid out of the accumulations in Depositor Education and Awareness fund, which also includes unclaimed deposits.

Bankers welcomed the proposal, noting that it would strengthen trust in the banking system. “The proposed fraud framework’s focus on improving customer centricity and grievance redressal across the banking system will enhance the trust of the customer and service quality,” said Binod Kumar, MD and CEO of Indian Bank.

The RBI proposed to publish a discussion paper on measures to enhance the safety of fast-growing digital payments. Malhotra said such measures may include lagged credits and additional authentication for specific classes of users such as senior citizens.

In a bid to further strengthen customer protection, the central bank will also issue three draft guidelines relating to mis-selling, recovery of loans and engagement of recovery agents, and limiting customer liability in unauthorised electronic banking transactions.

Mis-selling remains a key concern, particularly in the sale of insurance policies through banks, where products sold often differ from what is explained to customers or key policy terms are inadequately disclosed.

Currently, the Deposit Insurance and Credit Guarantee Corporation (DICGC) insures bank deposits up to ₹5 lakh per depositor, per bank, covering principal and interest for all deposit types if a bank fails.