Digital fraud: Banks to cover up to 85% of loss, once in lifetime
Mumbai: Banks will need to compensate users of digital payment modes for up to 85% of the transaction value in cases of fraud within 5
Mumbai: Banks will need to compensate users of digital payment modes for up to 85% of the transaction value in cases of fraud within 5 days of the scam being identified or confirmed, under new guidelines issued by the Reserve Bank of India (RBI) on Wednesday. The compensation will be available once in a customer’s lifetime, with the RBI bearing a significant portion of the cost. The central bank had issued draft norms on compensating victims of digital payment fraud in March 2026, following which lenders sought an extension of the five-day customer compensation timeline. However, the RBI declined the request in its final norms. Also Read | RBI governor Sanjay Malhotra calls rate hike talks premature “A bank shall provide the customer an application form for compensation only after it has examined the complaint and established her / his eligibility. Since no further examination is required to be carried out by the bank after receipt of a customer’s application for compensation, extension of the timeline for payment of compensation is not warranted,” the central bank said in its notes to the final norms. The RBI, however, accepted banks’ request to increase the timeline to examine frauds, establish the liability and respond. Banks had sought the extended timeline citing operational dependencies such as chargeback period prescribed by the payment system operators, involvement of intermediaries.
As such, the timeline has been extended from 30 days to 45 days in case of domestic transaction frauds, and 60 days in case of cross-border payments. The norms are part of the ‘Framework of Limiting Customer Liability in Digital Transactions’, which will come into effect on 1 January 2027. The norms will be applicable on electronic banking transactions undertaken on or after 1 July, 2026. As per the new framework, individuals and sole proprietors having lodged a complaint involving fraud-led loss of up to ₹50,000 will be eligible for a compensation of up to 85% of the net loss amount (calculated after reducing recoveries made) or ₹25,000, whichever is less, once during their lifetime. In case of credit card transactions, banks will need to provide shadow reversal equivalent to the amount involved within 5 days. The ₹50,000 limit will apply to the gross loss involved in a complaint, which may involve one or more fraudulent electronic banking transactions. The RBI will contribute 65% of the compensation, with 10% each being borne by the customer’s bank and the beneficiary bank. In case of a complaint arising out of cross-border fraudulent transactions where the beneficiary bank is outside India, 65% of the cost will be borne by RBI and 20% by the customer’s bank. Banks can seek reimbursement of the applicable amount from RBI on a quarterly basis.
The BriefWire