RBI Introduces Revised Customer Protection Framework for Digital Banking Fraud

The Reserve Bank of India (RBI) has finalised its directions on limiting customer liability in unauthorised digital transactions, introducing a revised framework for compensation, fraud reporting and complaint resolution. The new rules will come into effect from 1 January 2027. 

Compensation Framework 

Under the directions, victims of digital payment fraud involving losses of up to ₹50,000 will be eligible for compensation of up to ₹25,000 from their bank once during their lifetime. 

For domestic fraud cases, the compensation will be funded jointly, with the RBI contributing 65%, the customer's bank 10%, and the beneficiary bank, where the fraudster first received the funds, contributing 10%. 

For cross-border frauds where there is no Indian beneficiary bank, the RBI will bear 65% of the compensation, while the customer's bank will contribute the remaining 35%. 

Expanded Coverage and Customer Timelines 

The final framework extends protection beyond individual customers to include sole proprietors, expanding the scope from the draft directions. 

To qualify for compensation, customers must report the fraud to both the National Cyber Crime Reporting Portal or helpline 1930 and their bank within five calendar days of the incident. Banks must process compensation within five calendar days of receiving the application. 

New Customer Protection Measures 

The RBI has introduced a shadow reversal mechanism for fraudulent credit card transactions, a provision that was not part of the March draft. 

Banks will now be required to provide provisional credit for the disputed amount within five calendar days of the fraud being reported, even before the investigation is completed. 

The framework also lowers the threshold for mandatory instant SMS alerts on electronic banking transactions to ₹500, compared with the earlier ₹5,000. 

Complaint Resolution and Oversight 

Banks must resolve complaints within 45 calendar days for domestic fraud cases and 60 calendar days for cross-border cases. 

The directions also require banks to periodically report digital fraud complaints to their board or a designated board committee, with regular reviews aimed at strengthening systems, controls and customer protection measures. 

Read More: RBI Issues New TReDS Rules to Streamline MSME Participation! 

Conclusion 

The final framework introduces revised compensation, reporting and customer protection measures for unauthorised digital transactions, with the new directions taking effect from 1 January 2027.   

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