The Reserve Bank of India (RBI) on Friday proposed a new compensation framework for small-value fraudulent electronic banking transactions that would require the central bank, the customer’s bank and the beneficiary’s bank to jointly bear the payout, as part of efforts to strengthen customer protection amid rising digital banking frauds.
Under the draft rules released by the RBI, compensation to customers will be capped at the lower of 85 per cent of the net loss amount (after adjusting for any recoveries made) or ₹25,000 in cases where the gross loss from a fraudulent electronic transaction is up to ₹50,000.
RBI governor Sanjay Malhotra had announced during last month’s monetary policy that the central bank planned to introduce such a framework to compensate customers affected by small-value digital frauds, once during his/her lifetime.
According to the draft guidelines, for complaints involving a loss amount of less than ₹29,412—where compensation of 85 per cent of the loss is paid—65 per cent of the payout will be borne by the RBI, 10 per cent by the customer’s bank and the remaining 10 per cent by the beneficiary bank.
For complaints involving losses of ₹29,412 or more but up to ₹50,000—where the compensation amount is capped at ₹25,000—the RBI, the customer’s bank and the beneficiary bank will contribute ₹19,118, ₹2,941 and ₹2,941, respectively, towards the payout.
The draft rules also lay down provisions for cases where recoveries are made after compensation has been paid. In such instances, the customer’s bank will be required to recalculate the compensation payable based on the net loss amount and make additional payments from the recovered sum after adjusting for the compensation already paid.
Timely reporting
The compensation will be available only if the account holder reports the fraudulent transaction both on the National Cyber Crime Reporting Portal or through the National Cyber Crime Helpline and to the bank within five calendar days of the occurrence. The loss must also be determined as bona fide as per the bank’s internal processes.
Once a complaint is received, the bank will be required to compensate the customer within five calendar days, the draft rules said.
The guidelines further state that in the case of a joint account, only one of the account holders may submit a claim for compensation.
In cases where banks reverse a fraudulent electronic banking transaction, they must ensure that the reversal is value-dated to the original date of occurrence so that the customer does not suffer any loss of interest or incur additional interest or charges.
SMS alerts
The RBI has also proposed strengthening transaction alerts by mandating banks to send instant SMS alerts for all electronic banking transactions exceeding ₹500. For transactions up to ₹500, banks may decide whether to send instant alerts based on their internal policies.
Banks will also not be allowed to levy charges on customers for SMS messages sent in compliance with regulatory requirements or those sent for promotional, marketing or customer awareness purposes.
The draft framework further proposes enhanced oversight by requiring banks to establish mechanisms for periodic reporting of complaints related to fraudulent electronic banking transactions to their boards or a board-level committee. The reporting will include the number and value of cases, along with their distribution across categories such as card-present transactions, card-not-present transactions, internet banking, mobile banking and ATM transactions.
The RBI has invited comments and feedback on the draft rules until April 6, 2026. The new guidelines, once finalised, will come into effect from July 1, 2026.
Banking sources said that the draft rules, which propose sharing of compensation, will put the onus on both the victim’s bank and the beneficiary’s bank to step up vigilance.