The most important feature of the draft is the introduction of a compensation mechanism for small-value digital frauds, which account for the largest share of such unauthorised transactions

The Reserve Bank of India has proposed an overhaul of digital banking transactions framework to limit customer liability in case of unauthorised transfers or withdrawals and shift some of the responsibility in case of a fraud on the lender.

According to data shared with Parliament, digital frauds worth Rs 4,245 crore were reported in the first 10 months of FY25, involving about 24 lakh incidents. This represents a sharp increase from Rs 2,537 crore reported in all of FY23, highlighting the growing vulnerability of users as digital payments expand across the country.

Long-term data shows the trend even more clearly. Between FY22 and September 2025, India recorded around 5.83 lakh digital payment fraud cases involving losses of Rs 3,588 crore, according to information shared by the government citing RBI data. Credit card and internet banking frauds account for a large share of these cases

In this backdrop, the RBI’s  draft amendment on limiting customer liability in digital banking transactions are critical

Among the proposed changes, the most notable feature is the introduction of a compensation mechanism for small-value digital frauds. Customers who suffer losses in fraudulent transactions of up to Rs 50,000 could be eligible for compensation of up to Rs 25,000 or 85 percent of the net loss, whichever is lower.

While the amount may appear modest, one must remember that a large share of digital fraud cases involves relatively small sums. The proposal could therefore benefit many customers.

Second, banks will also need to demonstrate customer negligence in cases of disputed transactions. This is a crucial step in rebalancing the relationship between banks and customers. Too often, victims of digital fraud find themselves navigating complex complaint procedures, only to be told that the transaction was authorised.

Third, the draft directions also seek to reduce the time taken by banks to process complaints related to fraudulent digital transactions.

The expansion of the framework to cover a wider range of fraudulent electronic transactions is another welcome move, reflecting the evolving nature of digital financial crime.

That said, there are some limitations too. The relief is capped and reportedly available only once to a customer, which could dilute its long-term effectiveness.

However, the changes are encouraging. By tightening rules on customer liability and nudging banks towards greater accountability, the RBI is attempting to restore confidence in the system. That in itself is a welcome move.