RBI proposes compensation for bank fraud losses up to Rs 50,000

Mumbai: Bank customers losing up to Rs 50,000 in fraudulent electronic banking transactions could seek compensation even if the loss was due to their negligence, according to a Reserve Bank of India proposal. Under draft regulations issued by the central bank, such customers would be reimbursed 85% of the net loss or Rs 25,000, whichever is lower. The benefit could be availed of once during a customer’s lifetime. Customers would have zero liability and be entitled to reversal of the transaction if the fraud occurred due to negligence of the bank or because of a third-party breach.

The regulator has proposed to place the burden of proving customer liability on banks in such cases. The directions would apply to electronic banking transactions undertaken from July 1, 2026, the draft regulations said.

According to the Reserve Bank of India, nearly 65% of fraud cases involve amounts below Rs 50,000.

Compensation would be provided if the loss was established as genuine under the bank’s internal policy. The victim must report the incident both to the bank and the National Cyber Crime Helpline (1930) within five days of the fraud.

After receiving a complaint, banks must examine it, determine liability and respond to the customer within 30 days.

The draft framework sets out a compensation-sharing mechanism. For losses below Rs 29,412, where the compensation would be 85%, the RBI would provide 65%, while the customer’s bank and the beneficiary bank would contribute 10% each, it said. For losses between Rs 29,412 and Rs 50,000, the RBI would contribute Rs 19,118, while the customer’s bank and the beneficiary bank would put in Rs 2,941 each. The proposed compensation mechanism would remain in force for one year from the effective date, after which it would be reviewed, the RBI said. The aim is to gradually increase the share borne by banks and reduce or eliminate the central bank’s contribution in such instances, it said. The regulator has invited comments from stakeholders on the draft until April 6, 2026.

Negligence by a bank includes failure to put in place required security systems, send transaction alerts, provide channels to report fraud or act promptly on customer complaints. Customer negligence includes sharing credentials such as PINs, passwords or OTPs, delaying the reporting of fraud.