A high-level committee constituted by the Ministry of Home Affairs (MHA) to look into the menace of ‘digital arrest’ is considering the idea of a ‘kill switch’ that will allow users at the receiving end of a potential digital scam to immediately stop all financial transactions from their accounts, The Indian Express has learnt.
An insurance mechanism to cover fraud-related losses in the banking system may also be on the anvil as rising digital-age frauds force commercial banks to rethink their risk-mitigation frameworks to better protect customers and the wider financial system, according to officials involved in the proposal.
The proposal for a kill switch, which is being examined by an inter-departmental committee formed in late December, envisages, among other possibilities, an emergency button integrated into payment applications of lenders that can instantly freeze all banking operations when a user suspects he or she is being targeted by a fraudster.
“The idea is, can a user’s payments application, like the UPI app or bank app, have a kill switch, and the moment the user presses that button, no bank transaction will be possible,” a senior government official said, requesting anonymity.
“The committee is also looking if it is possible to identify transactions that may be fraudulent, and if there is a way to ensure that if such a transaction takes place, it cannot immediately be split into multiple mule accounts,” the official said.
In digital arrest scams, fraudsters impersonate law enforcement officials from the police, or other law enforcement agencies, via video calls, claiming victims are under investigation for serious crimes. Using leaked personal data for credibility, they create fear and urgency, keeping victims on calls for hours with fake IDs and arrest warrants. Victims are coerced into transferring large sums to avoid arrest. Victims across India are believed to have collectively lost nearly Rs 3,000 crore to digital arrest scams, prompting the Supreme Court to take suo motu cognizance of the issue last October.
The high-level inter-departmental committee (IDC) of the MHA was formed in December, and has officials from multiple agencies to comprehensively examine all facets of the issue of digital arrests. Last week, a status report submitted in the Supreme Court stated that the IDC has held a few meetings where extensive deliberations have taken place on the issues outlined in the court.
The committee has been constituted under the chairmanship of the Special Secretary (Internal Security), MHA, with representation at the level and above of Joint Secretary officers from the Ministry of Electronics and Information Technology (MeitY), Department of Telecommunications (DoT), Ministry of External Affairs (MEA), Department of Financial Services (DFS), Ministry of Law & Justice (MoLJ), Ministry of Consumer Affairs (MoCA), Reserve Bank of India (RBI), Central Bureau of Investigation (CBI), National Investigation Agency (NIA), Delhi Police, and the Indian Cyber Crime Coordination Centre (I4C), with the CEO, I4C acting as Member-Secretary.
The MeitY is learnt to have convened another meeting with IT intermediaries on January 6 this year. It was attended by the amicus curiae and representatives of I4C, MHA, Department of Telecom, Google, WhatsApp, Telegram, and Microsoft.
Queries sent to the MHA, Finance Ministry, IT Ministry, and Department of Telecommunications by The Indian Express remained unanswered until publication.
According to another official involved in the exercise, an insurance mechanism to cover fraud-related losses in the banking system is also on the table.
As digital transactions, mobile banking and online interfaces expand rapidly across India’s banking ecosystem, fraud risks have grown more sophisticated and pervasive. Cyber-enabled frauds, digital arrests, phishing attacks, account takeovers, mule accounts and complex third-party breaches have become harder to detect and prevent. While traditional internal controls, audits and compliance systems remain essential, the RBI has indicated that these measures alone may no longer be sufficient to address the evolving threat landscape.
At a financial sector event recently, RBI Deputy Governor T Rabi Sankar raised the question whether existing risk-transfer tools are adequate and whether there is scope for insurance against frauds, sparking discussions on the potential for insurance to play a more formal role in bank risk management. RBI officials have already discussed the issue with various stakeholders, sources said.
Meanwhile, sources said a formal fraud insurance proposal is yet to reach top insurance companies. “We have not received any formal proposal from regulators about this issue. The IRDAI will have to take the lead in this matter,” said an official of a public sector insurer.
The RBI’s suggestion signals a broader shift in thinking – from viewing fraud solely as a compliance issue to treating it as a balance-sheet and systemic risk. Collaborative efforts between banks, insurers and regulators could lead to innovative products tailored to evolving fraud profiles, strengthening the resilience of India’s fast-digitising financial system.
RBI’s Report on Trend and Progress of Banking in India says there were 23,879 fraud cases involving an amount of Rs 34,771 crore as of 2024-25. The RBI’s Payment Vision 2025 report, on the other hand, has proposed studying the feasibility of setting up a Digital Payment Protection Fund (DPPF) to provide security cover to defrauded customers and payment instrument issuers
While several insurance models are available, experts prefer an insurance pool – backed by contributions from banks, insurers and potentially supported by regulatory frameworks – that could spread fraud risk across the system, similar to terrorism insurance pools in several countries. Such a structure would help manage tail risks while keeping premiums affordable.
Ranjeeth Bellary, Partner, EY Forensic and Integrity Services-Cyber Forensics, said existing cyber insurance does not adequately cover first-party fraud losses, especially those arising from customer manipulation rather than system compromise.
“Insurance companies can form a fraud insurance pool like a terror pool, and this idea has been internally mooted by the Reserve Bank to tackle the rising surge of digital frauds, including ‘digital arrest’ scams,” he said.
According to the Haryana Police, the Double OTP system is designed specifically to break the chain of manipulation. (Representative Image) 
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