RBI strengthens customer protection in digital payments with Rs 25,000 fraud cover

The Reserve Bank of India (RBI) unveiled a series of measures on Friday, including steps aimed at enhancing the safety of digital payments and strengthening customer protection, as it concluded the Monetary Policy Committee meeting.

Draft guidelines for customer protection

RBI Governor Sanjay Malhotra announced that the central bank will issue three draft guidelines focused on key areas of consumer protection. These will address mis-selling of financial products, recovery of loans and engagement of recovery agents, and limiting customer liability in cases of unauthorised electronic banking transactions.

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“For customer protection, we will issue three draft guidelines: one, relating to mis-selling; two, regarding recovery of loans and engagement of recovery agents; and three, on limiting liability of customers in unauthorised electronic banking transactions,” the RBI monetary policy statement said.

Rs 25,000 compensation for small-value fraud

In a significant move to support victims of digital fraud, the RBI also proposed introducing a compensation framework that would allow customers to receive up to Rs 25,000 for losses incurred in small-value fraudulent transactions.

RBI to release discussion paper on digital payment safety

Highlighting growing concerns over digital fraud, Governor Malhotra stated that the central bank is taking further steps to enhance the security of electronic payment systems.

“You are all aware that there have been several fraudulent transactions, for which the Reserve Bank has taken several measures. In this regard, we also propose to publish a discussion paper on possible measures to enhance the safety of digital payments,” he said.

Additional safeguards for vulnerable users

The proposed discussion paper will explore additional safeguards, including lagged credits and stronger authentication requirements for specific categories of users, such as senior citizens.

"Such measures may include lagged credits and additional authentication for a specific class of users like senior citizens," RBI Governor Sanjay Malhotra said.

How the Rs 25,000 digital fraud compensation framework will work?

In a press conference, RBI clarified how its proposed Rs 25,000 compensation cover for small-value digital fraud will be calculated, stressing that the relief will be provided only once per customer in a lifetime to encourage greater vigilance.

Responding to Zee Business's question on cases involving OTP-related fraud and higher losses, RBI officials explained that compensation will be capped at the lower of 85 per cent of the loss amount or Rs 25,000.

How the compensation cap will work

For instance, if a customer suffers a loss of Rs 50,000, 85 per cent of the amount comes to around Rs 42,500. Since this exceeds the cap, the customer will receive Rs 25,000 as compensation.

However, if the loss is Rs 20,000, 85 per cent works out to around Rs 17,000.

In this case, the customer will be compensated Rs 17,000, while the remaining Rs 3,000 will have to be borne by the individual.

Loss-sharing between customers, banks and RBI

Under the proposed framework, customers will bear 15 per cent of the loss, banks will absorb another 15 per cent, and the remaining portion—subject to the Rs 25,000 ceiling—will be covered through the RBI’s mechanism.

RBI officials noted that data shows nearly 65 per cent of fraud cases involve amounts below Rs 50,000, making the compensation framework particularly relevant for small-value victims.

OTP-related fraud also covered

The central bank also underlined that the compensation will apply even in cases where customers mistakenly shared OTPs, terming it an 'unintended' relief aimed at protecting consumers.

'One-time lifetime relief, not recurring benefit': RBI

However, the RBI made it clear that the benefit will not be extended multiple times.

“The idea is that once a mistake is forgiven and compensated, customers should become more alert in the future,” RBI officials said, adding that the cover is a one-time lifetime relief and not an annual entitlement.

RBI to tighten norms on mis-selling practices

Separately, RBI acknowledged that mis-selling of financial products has emerged as a major concern.

Draft guidelines aimed at curbing such practices—including the use of deceptive ‘dark patterns’—are expected to be released soon as part of the broader customer protection framework.