RBI's Landmark Fraud Compensation Proposal
The Reserve Bank of India released draft guidelines on March 10 proposing a structured compensation framework for victims of digital banking fraud — a long-awaited move that could transform consumer protection in India's digital payments ecosystem. Under the proposed framework, fraud victims would be entitled to receive up to 85% of their fraud loss, with the RBI contributing 65% from a central consumer protection fund and the victim's bank contributing 20%.
Scope and Eligibility
The framework would apply initially to small-value frauds — transactions under ₹10,000 — effective July 1, 2026. A second phase extending coverage to transactions up to ₹1 lakh is proposed for January 2027. The draft excludes losses due to "gross negligence" by the customer, defined as sharing OTPs, PINs, or credentials with third parties, and excludes losses from SIM swaps where the customer has not enabled biometric 2FA.
Key Provisions
- Eligible transactions: UPI, IMPS, NEFT, RTGS, debit/credit card, internet banking
- Reporting window: Customer must report fraud within 72 hours of discovery
- Processing timeline: Banks must settle eligible claims within 10 business days
- Appeals: Unresolved disputes escalated to Banking Ombudsman within 30 days
- Consumer fund corpus: Initial ₹5,000 crore to be contributed equally by RBI and PSU banks
Industry Response
Banks have raised concerns about the 20% liability requirement, arguing it may incentivise fraudulent claims. Fintech associations broadly welcomed the proposal but called for faster resolution timelines. Consumer protection groups called it "a historic step" but asked for coverage of larger transaction values from day one.
