DigitalPayments – RBI Draft Proposal Aims to Strengthen Fraud Protection Rules
DigitalPayments – The Reserve Bank of India has released draft amendment directions proposing changes to the existing framework that governs customer liability in digital banking transactions. The central bank has invited comments on the proposal as part of its effort to strengthen protection for customers who fall victim to fraudulent electronic transactions.
Proposed compensation for small-value digital fraud
Under the draft framework, customers who promptly report fraudulent digital transactions may receive compensation of up to 85 percent of the loss or Rs 25,000, whichever amount is lower. The proposed rule will apply to fraud cases involving transactions of up to Rs 50,000.
The regulator believes that the revised approach will provide faster financial relief to victims of digital fraud, particularly in cases involving relatively small amounts. The proposed mechanism is intended to reduce the financial burden on individuals while encouraging banks to improve their response systems for such incidents.
Expansion of customer liability framework
The draft amendment seeks to broaden the scope of existing guidelines that limit customer liability in unauthorized electronic banking transactions. Current instructions, introduced in 2017, primarily focus on certain categories of unauthorized digital payments.
According to the central bank, the digital payments ecosystem has changed significantly in recent years. With the rapid expansion of online banking, mobile payments, and other electronic financial services, new types of fraudulent activities have also emerged. The proposed revision therefore aims to cover additional categories of digital banking fraud that were not explicitly addressed in the earlier framework.
Faster complaint resolution by banks
Another important objective of the draft guidelines is to reduce the time banks take to process complaints related to fraudulent electronic transactions. The central bank noted that delays in addressing such complaints often create financial stress for customers who lose money due to fraud.
The proposed rules are expected to streamline complaint handling procedures and encourage financial institutions to adopt quicker response mechanisms. By improving the speed of resolution, regulators hope to strengthen public trust in digital banking systems.
Temporary compensation mechanism
The amendment directions also introduce a compensation mechanism specifically designed for small-value fraudulent transactions. This mechanism is proposed as a temporary measure that will remain in effect for one year from the date the new rules become operational.
After the one-year period, the central bank plans to review the system based on practical experience and feedback. The review may lead to adjustments in how compensation is shared between banks and the central bank. The long-term objective is to gradually increase the share of responsibility borne by banks while reducing or potentially eliminating the contribution made by the regulator toward compensation.
Public consultation open until April 2026
The Reserve Bank of India has invited feedback from regulated entities, financial institutions, industry stakeholders, and members of the public on the draft amendment directions. Interested parties can submit their comments through email or via the RBI website.
The consultation period will remain open until April 6, 2026. After reviewing the responses received, the central bank will finalize the revised framework.
Measures announced in recent monetary policy meeting
The proposal follows a set of customer protection initiatives announced earlier this year during the central bank’s monetary policy meeting. In February, RBI Governor Sanjay Malhotra outlined several steps aimed at strengthening financial sector safeguards.
Among the measures discussed was the introduction of a framework that would compensate customers for losses in small-value fraudulent digital transactions up to Rs 25,000. The governor also indicated that the central bank intends to publish a discussion paper exploring additional steps to improve the security of digital payment systems.
These initiatives are part of a broader effort to enhance financial inclusion, improve the flow of credit, strengthen urban cooperative banks, simplify regulatory procedures for non-banking financial companies, and deepen India’s financial markets.
The proposed amendments on customer liability are expected to play a key role in reinforcing trust in the country’s rapidly growing digital payments ecosystem.