Digital scam compensation pilot of RBI

Why in News?

The Reserve Bank of India (RBI) has introduced an amendment to its landmark 2017 circular on "Limiting Liability of Customers in Unauthorised Electronic Banking Transactions".

• New Framework - It introduces a targeted mechanism to reimburse retail customers who fall victim to sophisticated digital frauds, while clearly defining the boundaries of customer negligence.
• Timeline - The new rules will be implemented as a 1-year pilot project effective from January 1, 2027.
• It also follows an extension from the originally proposed July 1 draft date to allow banks sufficient implementation time.
• Shift from the 2017 Framework - Under the 2017 guidelines, banks were held liable to compensate customers primarily if the transactions were completely unauthorized by the user.
• Fraudulent Electronic Banking Transactions (EBTs) - The RBI defines these as transactions executed by a third-party using credentials obtained from the customer through fraudulent means, or executed by the customer under explicit coercion or duress.
• Included Scams
  • Digital Arrests - Where victims are psychologically coerced by fraudsters posing as law enforcement into transferring funds.
  • Fraudulent OTP Theft - Where one-time passcodes are deceptively stolen from the customer.
• The Guardrail of Customer Negligence - Customers who actively ignore explicit, automated fraud signal warnings such as real-time alerts displayed on a UPI PIN screen indicating a potential scam will not be eligible for compensation.
• Contact Information Mandate - Failure to update and register the latest mobile number or email address with the bank automatically constitutes customer negligence, as it prevents the delivery of critical automated fraud alerts.
• Reporting Window- For third-party breaches, the timeline for a customer to report a loss has been increased to 5 calendar days (up from the previous standard of three working days).
• Compensation Mechanism - The framework strictly applies to losses up to Rs.50,000.
• Scams involving losses above Rs.50,000 are completely excluded from this specific pilot framework.
• Individual victims can claim 85% of the lost amount, subject to a strict lifetime cap of Rs.25,000 per customer.
• Consequently, for any scam amount ranging between Rs. 29,412 and Rs. 50,000, the customer will receive a flat, capped compensation of Rs. 25,000.
• Approximately 3/4^th (75%) of the compensation amount is funded directly by the RBI, customer's bank and the beneficiary bank (where the stolen funds landed) equally share the remaining 25% of the payout.
• Settlement Timelines - The institutional complaint settlement timeline has been extended to 45 to 60 days (with the upper 60-day limit reserved specifically for cross-border or international electronic transactions).

Reference

The Hindu | RBI’s digital scam compensation pilot