Victims of unauthorised digital payment frauds may soon have a clearer route to compensation, with the Reserve Bank of India (RBI) introducing a framework that allows eligible customers to claim up to ₹25,000 if they report the incident within the prescribed timeline.
The framework will be effective from January 1, 2027, and the motive behind it is to ensure that consumers are better protected since instances of frauds in digital payments have increased rapidly along with the usage of UPI, internet banking, and mobile payment solutions.
According to the draft proposal of the RBI, customers that report any unauthorised transaction made using their account within five days of detecting the fraud will get compensation of up to ₹25,000 based on the criteria stipulated by the RBI and investigations carried out by the bank.
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RBI encourages banks to better detect frauds
In addition to compensation for frauds, the Reserve Bank of India (RBI) has issued draft guidelines related to model risk management so that banks can effectively handle artificial intelligence (AI), machine learning, and other automated decision-making technologies used in finance.
According to the RBI, improved management of such models can help banks detect fraud more efficiently.
Commenting on the draft guidelines, Ajay Sirikonda, Partner and Leader – Financial Services Risk Management at EY India, said the RBI has provided banks with a clearer framework for managing AI-related risks.
"The RBI's draft guidance is a welcome step that finally gives Indian banks a clear playbook for model and AI risk. In some ways it goes further than the UK's PRA or the US regulators by bringing AI, third-party models and consumer protection into one framework," he said.
Sirikonda added that while the guidelines introduce stronger governance requirements, they also reduce regulatory uncertainty for banks looking to expand the use of AI in fraud detection.
Quick reporting remains crucial
However, even with the compensation framework, consumers would have to report any unauthorized transactions quickly.
According to the RBI, the compensation process would be contingent on prompt reporting, adherence to the framework, and investigation results of the banks.
According to the RBI, quick reporting of suspicious transactions by the consumers, along with more robust fraud monitoring by banks through AI, could increase the likelihood of spotting these transactions and reducing financial loss.
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At present, the draft guidelines for the model risk management are under consultation, whereas the compensation framework would become effective from January 1, 2027.
FAQs
Q1. What is the compensation amount for digital fraud victims as per the new RBI framework?
Consumers could claim compensation amounting to ₹25,000 if they report their unauthorized digital transactions within the given timeframe as well as satisfy the conditions set out in the framework.
Q2. From which date are the RBI rules for digital fraud compensation going to be effective?
The framework is scheduled to come into force on January 1, 2027.
