RBI proposes compensation of up to ₹25,000 for small-value digital banking fraud victims; seeks public comments

The Reserve Bank of India (RBI) has proposed a compensation framework for victims of small-value digital banking frauds, under which individuals could receive up to 85 per cent of their loss, subject to a cap of ₹25,000 and only once in their lifetime.

The proposal forms part of draft amendment directions issued on Friday ( March 6) to review the framework on limiting customer liability in digital transactions.

“Upon a review, it has been decided to issue revised instructions on the subject… to enhance the scope of existing instructions… reduce the time taken by banks to process complaints and introduce a compensation mechanism for small value fraudulent electronic banking transactions,” the RBI said.

The draft amendment directions follow the announcement made in the Statement on Developmental and Regulatory Policies dated February 6, 2026. The central bank has invited comments from stakeholders and members of the public on the draft guidelines until April 6, 2026.

Compensation framework

Under the proposed framework, compensation will be available to individual customers who suffer losses of up to ₹50,000 due to fraudulent electronic banking transactions in specified cases.

A “bona fide victim” will be compensated 85 per cent of the net loss amount or ₹25,000, whichever is lower, once during his or her lifetime, subject to conditions including reporting the fraud to the bank and through the National Cyber Crime Reporting Portal or the National Cyber Crime Helpline within five calendar days of its occurrence.

For losses below ₹29,412, where compensation is calculated at 85 per cent of the loss, 65 per cent will be borne by the RBI, while the customer’s bank and the beneficiary bank will bear 10 per cent each.

For losses between ₹29,412 and ₹50,000, the compensation will be capped at ₹25,000, with the RBI contributing ₹19,118 and the customer’s bank and the beneficiary bank contributing ₹2,941 each.

If loss is below ₹29,412

(85% of loss is below ₹25,000)

2. If Loss is between ₹29,412 and ₹50,000

Banks will be required to credit the compensation to the customer within five calendar days of receiving the application and may subsequently seek reimbursement of the RBI’s share every quarter.

Illustrative example

The RBI has also illustrated the compensation mechanism through examples.

In one case cited in the draft, if a customer reports a loss of ₹40,000 and ₹15,000 is recovered before compensation, the net loss becomes ₹25,000 and the customer would receive ₹21,250, or 85 per cent of the net loss. Of this amount, ₹16,250 would be contributed by the RBI, while the customer’s bank and the beneficiary bank would contribute ₹2,500 each.

Illustrative Example Table

Expanded definition of fraud

Alongside the compensation framework, the RBI has proposed broader changes to customer protection rules in digital banking.

The draft expands the definition of authorised electronic banking transactions to include payments approved through authentication methods such as OTPs, PINs, CVV, passwords or other electronic authentication mechanisms.

It also covers situations where a transaction is executed “by a third party using credentials obtained from the customer through fraudulent means” or when a customer is “tricked into willingly sending money to a scammer who is posing as a legitimate recipient.”

Liability rules and complaint timelines

Under the proposed framework, customers will have zero liability where the fraud occurs due to negligence or deficiency on the part of the bank.

Zero liability will also apply in cases of third-party breaches if the customer reports the unauthorised transaction within five calendar days.

Banks will also be required to send instant SMS alerts for all electronic banking transactions above ₹500 and provide round-the-clock channels for reporting fraud or loss of payment instruments.

They must resolve complaints and establish liability within a period specified in their policy, but not exceeding 30 calendar days.

One-year pilot mechanism

The central bank said the proposed compensation mechanism will remain in force for one year from the effective date of the directions.

It will subsequently be reviewed “based on the experience gained to enhance the share of the banks and reduce or eliminate the share of RBI in the compensation paid to the victims.”