The Reserve Bank of India (RBI) has announced a landmark decision offering relief to bank account holders who fall victim to credit card and digital banking fraud. The central bank has made clear that banks must process a shadow reversal of the disputed amount within five days of receiving a customer complaint regarding fraudulent transactions. The RBI has released a revised regulatory framework designed to limit customer liability in digital transactions, with the new rules set to take effect from January 1, 2027.
The RBI has directed banks to strengthen their systems so that customers can conduct digital banking transactions safely and without fear. As part of this, banks are required to send an immediate SMS alert to customers for every digital transaction above Rs. 500. For transactions below Rs. 500, banks may decide whether to send an alert based on their own policy, but they cannot levy any additional charges on customers for doing so. Banks’ communication systems must also accurately record the time at which alerts are delivered to customers and the time at which customers respond.
If a customer reports that money has been fraudulently debited from their account, banks must take immediate action to prevent further unauthorised transactions. Where such fraud occurs due to a deficiency or negligence on the bank’s part, the customer bears no liability whatsoever — whether or not they have filed a complaint — and the bank must refund the full amount. In cases of third-party fraud, if the customer informs the bank within five days of becoming aware of the incident, the full amount must be returned with no loss to the customer. Complaints filed after the five-day window will have customer liability determined in accordance with the bank’s own policy.
When crediting the fraudulent amount back into a customer’s account, banks must do so with effect from the original date of the fraud, ensuring the customer suffers no loss of interest or bears any additional charges. However, if the fraud occurred due to the customer’s own negligence, the customer will be held liable. That said, if any unauthorised transactions occur in the account even after the customer has lodged a complaint with the bank, the entire loss from those transactions must be borne by the bank.
The RBI has also introduced a dedicated compensation mechanism for victims of small-value fraud. Available only once in a customer’s lifetime, this scheme entitles a genuine victim of digital fraud up to Rs. 50,000 to compensation equivalent to 85 percent of the net loss, or Rs. 25,000, whichever is lower. For instance, in domestic fraud cases where the loss is below Rs. 29,412 and 85 percent compensation is applicable, the RBI will bear 65 percent of the loss, the customer’s bank 10 percent, and the bank to which the money was fraudulently transferred the remaining 10 percent. The RBI has issued these directives separately to commercial banks, small finance banks, payment banks, and cooperative banks.