Falling victim to digital banking fraud may no longer mean a permanent loss of funds for many. The Reserve Bank of India (RBI) has announced a new compensation framework, effective January 1, 2027, which aims to provide relief to individuals affected by fraudulent electronic banking transactions (EBTs).
Understanding the New RBI Compensation Rules
Under the forthcoming regulations, eligible individual customers who suffer losses in fraudulent EBTs up to ₹50,000 can receive compensation from their banks. This new framework places increased responsibility on banks, requiring them to enhance fraud detection systems and streamline the compensation process.
Previously, victims of scams like phishing, fake KYC updates, or fraudulent UPI and internet banking transactions often faced significant hurdles in recovering their money. The new directions are designed to simplify this process and offer a clearer path to reimbursement.
Who is Eligible for Compensation?
- The framework applies to bona fide individual customers, including sole proprietors.
- The total fraudulent transaction amount must not exceed ₹50,000.
- Cases involving losses above ₹50,000 will continue to be handled under existing recovery and dispute resolution processes.
How Much Can Victims Recover?
The compensation is not a fixed amount. Eligible customers can receive 85% of their net loss (after deducting any amounts already recovered by the bank) or ₹25,000, whichever figure is lower. For instance, if a customer loses ₹20,000 and the bank recovers ₹5,000, the net loss is ₹15,000. The compensation would then be 85% of ₹15,000, totaling ₹12,750. If the net loss is ₹40,000, 85% would be ₹34,000, but the customer would receive the maximum permissible amount of ₹25,000.
It's important to note that this benefit is available only once during a customer's lifetime.
Bank's Responsibility and Burden of Proof
A significant change introduced by the RBI is that the burden of proving customer liability now rests with the bank. This shift offers greater protection to victims during the dispute resolution process, as banks must demonstrate that the customer was at fault for the fraud.
The compensation will be paid directly by the customer's bank, not by the RBI. Banks are tasked with investigating complaints, calculating eligible compensation after factoring in any recoveries, and crediting the amount if the customer meets the framework's criteria.
Sharing the Compensation Burden
Under the RBI's framework, the compensation burden is shared between the central bank and participating banks. The contribution varies based on the value of the fraud and whether the transaction is domestic or cross-border. For eligible cases involving losses below ₹29,412, the RBI bears the largest share, with the customer's bank and, in domestic transactions, the beneficiary bank contributing the balance.
For higher eligible losses—between ₹29,412 and ₹50,000—the compensation is capped at ₹25,000, with predefined contributions from the RBI and banks. Should additional funds be recovered from fraudsters later, these recoveries will be distributed according to RBI's prescribed formula, ensuring customers are appropriately reimbursed and allowing the RBI and banks to recoup their contributions.