The Reserve Bank of India is planning to introduce a compensation system for customers who fall victim to small digital frauds, offering reimbursement of 85% of the lost amount or up to ₹25,000, whichever is lower. This relief will be available only once in a person’s lifetime and will apply even to individuals who mistakenly shared their one-time passwords.
RBI Proposes One-Time Compensation of Up to ₹25,000 for Small Digital Fraud Victims
The proposal is part of a wider effort to strengthen consumer protection rules, especially as concerns grow over cybercrime, misleading financial product sales, and forceful loan recovery methods.
RBI Governor Sanjay Malhotra explained that the central bank has reassessed its 2017 guidelines that were designed to limit customer liability in cases of unauthorised electronic banking transactions. The review was prompted by the rapid expansion of digital banking and payment technologies over the past several years.
He stated, “Accordingly, the draft revised instructions, including a framework for compensation in case of small value fraudulent transactions, shall be issued shortly for public consultation,” indicating that the new rules will soon be open for feedback from the public.
Malhotra added that while customers should ideally learn from others’ mistakes, the RBI recognizes that first-time victims deserve support. Under the updated approach, 70% of the loss would be compensated in such cases, while the remaining 30% would be shared equally between the bank and the customer.
Beyond digital fraud, the RBI is also moving to crack down on the mis-selling of financial products by regulated institutions. Malhotra warned that mis-selling carries “significant consequences for both customers as well as the regulated entity.”
RBI Calls for Stricter Oversight to Prevent Mis-Selling of Financial Products
He emphasized the importance of ensuring that products and services offered at bank branches are appropriate for customers and aligned with their individual risk tolerance. As he put it, “There is a felt need to ensure that third-party products and services that are being sold at the bank counters are suitable to customer needs and are commensurate with the risk appetite of individual clients.”
To tackle this issue, the RBI intends to release detailed guidelines that will govern how financial products are advertised, marketed, and sold. “The draft instructions in this regard shall be issued shortly for public consultation,” Malhotra confirmed.
The central bank also plans to reassess and standardize the rules related to loan recovery practices and the use of recovery agents, an area that has generated frequent complaints from customers.
Currently, different types of regulated financial institutions follow varying codes of conduct regarding loan recovery. Malhotra noted, “It has now been decided to review and harmonise all the extant conduct-related instructions on engagement of recovery agents and other aspects related to recovery of loans,” and said that draft guidelines will soon be shared for public input.
