8: RBI’s Compensation Framework for Cyber Fraud Victims

• Targeted Relief: In February 2026, the RBI proposed a first-of-its-kind framework to compensate victims of small-value digital frauds (typically transactions below ₹50,000), which account for 65% of reported cases. • Compensation Cap: The scheme offers a one-time relief covering 85% of the lost amount or ₹25,000, whichever is lower. This is designed to provide a \'safety net\' for the most vulnerable users of digital payments. • \'No Questions Asked\' Policy: Crucially, the RBI stated that compensation would be provided even if the victim shared an OTP under deception, provided it was the first instance and no malafide intent is found.• Shared Responsibility Model: To maintain \'skin in the game,\' the loss is shared: the DEA Fund (via the regulator) covers the bulk, while the bank and the customer each bear a 15% share of the loss. • Funding Mechanism: The payouts will be financed by the Depositor Education and Awareness (DEA) Fund, which utilizes interest accrued on unclaimed deposits (inoperative for over 10 years). • Boosting Digital Trust: The move accompanies other safety measures like \'lagged credits\' (delayed fund transfers for verification) and enhanced authentication for senior citizens to bolster confidence in the UPI ecosystem. Constitutional & Legal Context • Section 26A of the Banking Regulation Act, 1949: Empowers the RBI to establish the DEA Fund using unclaimed balances. The fund\'s primary mandate is the promotion of depositors\' interests. • RBI’s 2017 Guidelines on Limited Liability: The current framework that defines Zero Liability (when the bank is at fault) and Limited Liability (when the customer is at fault). The new 2026 proposal expands protection even to cases of \'user error.\' • Article 21 (Financial Security): Though indirectly, ensuring the safety of one\'s hard-earned money in a state-mandated digital economy aligns with the broader right to a dignified life and protection of property. Key Definitions • Unauthorised Electronic Transaction: A transaction that occurs without the knowledge or consent of the account holder, often through phishing, vishing, or sim-swapping. • Lagged Credit: A proposed security mechanism where funds are not immediately available to the receiver, allowing a short window for the sender to report and freeze a fraudulent transaction. Conclusion The RBI’s shift toward a \'consumer-first\' compensation model acknowledges the sophistication of modern cyber-criminals. By reducing the penalty for human error in digital transactions, the regulator aims to protect the integrity of India’s digital financial infrastructure. UPSC Relevance • GS Paper 3: Indian Economy (Banking); Challenges to internal security through communication networks (Cybersecurity). • Prelims: DEA Fund (Banking Regulation Act); Role of the Monetary Policy Committee (MPC); Digital India initiatives.