Statistics- RBI Deputy Governor Rabi Sankar asks banks to consider insurance for fraudsLoan Demand

Reserve Bank of India (RBI) Deputy Governor Rabi Sankar has stirred discussion in the banking and risk community by questioning whether banks should explore insurance mechanisms specifically designed to cover fraud losses. Speaking at a recent financial sector event, he highlighted the increasing incidence of frauds in the digital age and urged banks to rethink their risk mitigation frameworks to better protect stakeholders.

Rabi Sankar noted that as digital transactions and online interfaces expand rapidly across India’s banking ecosystem, fraud risks have simultaneously grown more sophisticated and pervasive. He said the traditional internal controls and compliance systems, while essential, may no longer be sufficient on their own to address the evolving threat landscape. “We must ask ourselves whether existing risk transfer tools are adequate. Can we think of insurance for frauds?” he remarked, triggering deliberations over the potential role of insurance in supporting bank risk management.

The Deputy Governor emphasised that such an approach would not replace robust internal risk controls or regulatory oversight but could supplement them by providing financial buffers against unforeseen losses arising from cyber-enabled frauds, third-party breaches, and complex scheme manipulations. He suggested that collaborative efforts between banks, insurers, and regulators could lead to innovative products tailored to fraud risk profiles.

Industry experts observed that fraud insurance currently exists in limited forms, but products specifically calibrated to the unique contours of banking fraud—especially in the context of digital transactions—have yet to attain wide adoption. Developing such solutions could encourage stronger risk-aware practices, improve resilience, and reduce the systemic burden of fraud-induced losses.

RBI’s comments come amid rising concerns over cybercrime, payment frauds, and identity theft affecting customers and institutions alike. Stakeholders indicated that discussions around insurance as a risk transfer tool may now gain momentum, potentially leading to new products that align with regulatory expectations and market needs.

The proposition also raises questions about pricing, moral hazard, and claim triggers, all areas that would require careful regulatory and actuarial attention before any broad-based adoption. Nonetheless, the RBI’s call for strategic thinking reflects a broader shift toward more holistic risk management frameworks in India’s banking sector.

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