RBI Brings Relief for Digital Fraud Victims: Banks to Cover Up to 85% Loss, But Only Once in a Lifetime
Mumbai : In a major move aimed at strengthening protection for digital banking users, the Reserve Bank of India (RBI) has introduced new rules that ensure compensation for victims of digital payment fraud—while also setting clear limits on how often this relief can be claimed.
The new framework, called the “Framework of Limiting Customer Liability in Digital Transactions”, is designed to reduce the financial burden on customers who fall victim to cyber frauds and unauthorized transactions.
Up to 85% compensation for small fraud cases
Under the updated guidelines, individuals and sole proprietors who suffer fraud-related losses of up to ₹50,000 will be eligible for compensation.
The relief will be either:
- up to 85% of the net loss (after deducting any recovered amount), or
- ₹25,000,
whichever is lower.
However, this benefit will be available only once in a customer’s lifetime, making it a one-time safety net for genuine victims of digital fraud.
Quick payout within 5 days
The RBI has also made it mandatory for banks to process and pay compensation within five days of confirming that a fraud has taken place.
Officials say the aim is to ensure that victims are not left waiting for long periods after suffering financial loss due to cybercrime or unauthorized digital transactions.
Who bears the cost?
The compensation burden will not fall entirely on banks or customers. Instead, the RBI will absorb a significant share of the cost.
The breakdown is as follows:
- RBI: 65%
- Customer’s bank: 10%
- Beneficiary bank: 10%
In certain cross-border fraud cases, the cost-sharing structure may differ slightly, especially when foreign banks are involved.
Extended timelines for banks to investigate
While customer compensation must be fast, banks have been given more time to investigate fraud cases.
- Earlier timeline: 30 days
- New timeline: 45 days (domestic cases)
- 60 days (cross-border transactions)
The RBI said this extension was necessary due to operational complexities such as chargeback processes and involvement of multiple intermediaries.
Credit card and other protections
For credit card fraud cases, banks will now be required to provide a shadow reversal—essentially a temporary credit equal to the disputed amount—within five days of reporting.
The ₹50,000 limit will apply to the total loss in a complaint, even if it involves multiple fraudulent transactions.
What is included—and what is not
The RBI clarified that the rules apply to most electronic banking transactions, including:
- Fraud using stolen credentials
- Transactions made under coercion or deception
- Payments made to scammers posing as legitimate recipients
However, certain disputes will not be covered, such as:
- Issues related to goods or services (like defective products or non-delivery)
- Cheque-based transactions
- Cases where customer negligence (like not updating phone numbers) leads to missed alerts
Stronger fraud reporting system
To help customers report fraud quickly, banks must now offer 24×7 complaint channels, including:
- Phone banking
- SMS and email
- IVR systems
- Toll-free helplines
- Branch reporting
The RBI also emphasized that SMS alerts remain mandatory for transactions above ₹500, ensuring even customers without smartphones receive timely notifications.
When will the new rules apply?
The new framework will come into effect from January 1, 2027, but will apply to transactions carried out on or after July 1, 2026.
A step toward safer digital banking
With digital payments growing rapidly across India, the RBI’s move is seen as a major step toward building trust and safety in online banking. While compensation is limited to once in a lifetime, the framework aims to ensure that victims of fraud are not left helpless and receive timely financial support when they need it most.
News source: Information for this article was gathered from a variety of reliable news outlets.
