Digital fraud: Banks cover up to 85% of once-in-a-lifetime losses | Today’s news

Mumbai: Banks will have to compensate users of digital payment modes up to 85% of the transaction value in cases of fraud within 5 days of detection or confirmation of fraud, according to new guidelines issued by the Reserve Bank of India (RBI) on Wednesday.

The compensation will be available once in the customer’s lifetime, with RBI bearing a significant portion of the cost.

The central bank issued draft standards for compensating victims of digital payment fraud in March 2026, after which lenders asked for an extension of the five-day deadline to compensate customers. However, RBI rejected the request in its final norms.

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“The bank will provide the customer with the compensation request form only after it has examined the complaint and determined its eligibility. Since the bank does not need to conduct any further investigation after receiving the client’s request for compensation, the extension of the deadline for payment of compensation is not justified,” the central bank said in its comments on the final standards.

However, the RBI accepted the banks’ request for extension of time for fraud investigation, liability determination and response. Banks sought an extended timeline citing operational dependencies such as chargeback period prescribed by payment system operators, involvement of intermediaries. The deadline was thus extended from 30 days to 45 days in the case of domestic transaction fraud and 60 days in the case of cross-border payments.

The standards are part of the “Framework for Limiting Customer Liability in Digital Transactions,” which will come into effect on January 1, 2027. The standards will apply to e-banking transactions made on or after July 1, 2026.

Under the new framework, individuals and sole proprietors filed a claim for fraud losses up to ₹50,000 will be entitled to compensation up to 85% of the net amount of the loss (calculated after reducing the payments made) or ₹25,000, whichever is less, once in a lifetime. In the case of credit card transactions, banks will have to provide a shadow reverse equivalent of the corresponding amount within 5 days.

The ₹The 50,000 limit applies to the gross loss related to the claim, which may include one or more fraudulent e-banking transactions.

RBI will contribute 65% of the compensation, while 10% will be borne by the customer’s bank and the beneficiary’s bank. In case of a complaint arising out of cross-border fraudulent transactions where the beneficiary’s bank is outside India, 65% of the cost will be borne by the RBI and 20% by the customer’s bank. Banks can claim reimbursement of the relevant amount from RBI on a quarterly basis.

“The ‘once-in-a-lifetime’ provision is applicable across banks and the bank will process the claim from the customer based on the declaration made by him in the application form,” RBI said.

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Electronic transactions include all payments made by a third party using credentials obtained from a customer by fraudulent means; made by the customer by giving consent under duress or coercion of a third party; or those made by a customer when they are tricked into voluntarily sending money to a fraudster posing as a legitimate recipient. Unauthorized transactions would also mean transactions that were not authorized by the customer but were made due to the bank’s negligence or third party breach.

Transactions made through checks and those involving a dispute between the customer and the merchant, such as payment made but goods/services not received, goods delivered defective, etc., will not fall within the scope of these guidelines.

“Customer negligence” where the customer has not updated his registered mobile number or email address with the bank could lead to situations where the customer does not receive transaction alerts even when the bank sends them, thereby limiting the scope for early detection of any fraudulent transaction, the RBI said, adding that it would also not be liable for compensation for such incidents.

The RBI has rejected banks’ proposal for flexibility in choosing channels for sending transaction alerts, which may include instant messaging, in-app alerts, among others. The RBI said SMS is the only electronic mode of communication available to customers who do not have a smartphone or access to the internet. Banks are thus obliged to send customers immediate SMS alerts for all electronic banking transactions over ₹500 and substitutes such as instant messaging and in-app notifications can be used as additional channels for sending transaction alerts.

While customers are encouraged to report any fraudulent e-banking transactions to banks immediately, for convenience, the same banks will be required to provide customers with 24/7 access through multiple channels, including phone banking, SMS, email, interactive voice response (IVR), dedicated toll-free helpline and home branch reporting.

“The channels mentioned in the provision are indicative in nature. While a bank is required to provide multiple channels 24×7 for reporting fraudulent e-banking transactions, it is not required to provide all the channels covered in the provision,” RBI said.

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