Banks seek centralised fraud reporting mechanism ahead of RBI compensation policy

New Delhi: Banks have flagged the need for setting up a centralised mechanism for fraud reporting and claim settlement ahead of the RBI's compensation policy for victims of small-value fraudulent electronic transactions, which will provide eligible victims compensation of up to ₹25,000 from January 2027.

They have approached the banking regulator seeking clarity on customer eligibility, reporting timelines, beneficiary-bank liability and recoveries, said people familiar with the developments.

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"There is a view that on an individual bank-level there can be implementation challenges, therefore there is a need for a standardised industry-level framework," said a bank executive aware of the developments. "We have held internal discussions with banks, and some of these suggestions have been shared with RBI."

Another bank executive said that while banks support a compensation mechanism, its implementation may require greater co-ordination among lenders, the regulator and investigating agencies. "Already, there have been ongoing discussions on mule accounts. So, we need to set up a mechanism to ensure that all stakeholders are aligned in cases involving such fraudulent transactions before any compensation is paid to the customer."

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In March, RBI issued instructions titled 'Limiting Liability of Customers in Unauthorised Electronic Banking Transactions'. Under the instructions, an individual acting in good faith who has lodged a complaint involving a gross loss of up to ₹50,000 due to fraudulent electronic banking transactions will be eligible for compensation of 85% of the net loss or ₹25,000, whichever is lower. The compensation will be available only once during the individual's lifetime.

The compensation amount will be calculated after reducing recoveries made, whether before or after paying the compensation, from the gross loss amount. As per the mechanism, where a compensation of 85% is paid, 65% will be borne by RBI, 10% by the customer's bank and the remaining 10% by the beneficiary bank in case of a complaint arising out of domestic fraudulent electronic banking transactions (EBTs). For cross-border fraudulent EBTs, RBI will bear 65% and the customer's bank the remaining 20%.

In April, RBI released a discussion paper titled 'Exploring Safeguards in Digital Payments to Curb Frauds'. It outlined four options: lagged credit for authorised push payments other than low value, additional authentication by trusted person for high-value digital transactions by vulnerable sections of society, only accounts with satisfactory additional review to receive large credits and customer-induced controls.