RBI Unveils Draft Framework for Digital Transaction Security, Shifts Liability to Banks

Digital Banking Transactions Framework Overhaul Proposed by RBI

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

Digital Fraud Trends

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, with India recording around 5.83 lakh digital payment fraud cases involving losses of Rs 3,588 crore between FY22 and September 2025.

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RBI's Proposed Changes

The RBI's draft amendment proposes 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. Additionally, banks will need to demonstrate customer negligence in cases of disputed transactions, and the draft directions seek to reduce the time taken by banks to process complaints related to fraudulent digital transactions.

Key Features of the Proposal

• Compensation mechanism for small-value digital frauds
• Banks must demonstrate customer negligence in cases of disputed transactions
• Reduction in time taken by banks to process complaints related to fraudulent digital transactions
• Expansion of the framework to cover a wider range of fraudulent electronic transactions

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Limitations and Next Steps

The relief is capped and reportedly available only once to a customer, which could dilute its long-term effectiveness. However, the changes are encouraging, as they attempt to restore confidence in the system by tightening rules on customer liability and nudging banks towards greater accountability.