RBI proposes compensation of up to Rs 25,000 for victims of digital fraud

Mangalore Today News Network

Mumbai, Feb 10, 2026: In a significant move to strengthen consumer protection, the Reserve Bank of India (RBI) has proposed compensating customers affected by small-value digital frauds, with payouts of up to Rs 25,000, under a revamped customer protection framework.

Under the proposal, victims of digital fraud would be eligible for compensation equal to 85 per cent of the loss or Rs 25,000, whichever is lower. The relief will be available as a one-time benefit in a customer’s lifetime and will also cover cases where customers may have shared one-time passwords (OTPs).

RBI Governor Sanjay Malhotra said the central bank has reviewed its 2017 framework on limiting customer liability in unauthorised electronic banking transactions, citing the rapid growth of digital banking and payment systems. He said draft revised instructions, including a compensation framework for small-value fraudulent transactions, will be issued shortly for public consultation.

Malhotra added that the RBI has decided to extend relief to first-time fraud victims, under which 70 per cent of the loss will be compensated, while the remaining 30 per cent will be shared equally by the bank and the customer.

The RBI is also tightening norms to curb mis-selling of financial products by regulated entities. The governor said mis-selling has serious implications for both customers and institutions and stressed the need to ensure that third-party products sold at bank counters are suitable for customers and aligned with their risk appetite. Draft guidelines covering advertising, marketing and sales of financial products and services will be placed in the public domain soon.

Additionally, the central bank will review and harmonise rules governing loan recovery practices and the engagement of recovery agents, an area that has drawn frequent complaints. Draft norms aimed at standardising conduct-related instructions across regulated entities will be released for public feedback.

Meanwhile, the RBI provided an update on the withdrawal of Rs 2,000 denomination currency notes, stating that 98.42 per cent of the notes issued earlier have been returned to the banking system. As of January 31, 2026, Rs 2,000 notes worth Rs 5,609 crore remain in circulation, compared to Rs 3.56 lakh crore at the time the withdrawal was announced on May 19, 2023.

The RBI said the facility to deposit or exchange Rs 2,000 notes has been available at all RBI branches since October 7, 2023, and at all 19 RBI issue offices for direct credit to bank accounts since October 9, 2023. The public can also send the notes through post offices for credit to their accounts.

Clarifying the procedure, the RBI said there is no ceiling on the amount of Rs 2,000 notes that can be deposited, subject to existing KYC and cash deposit norms. While reiterating that the notes remain legal tender, the central bank advised holders to deposit them at the earliest as the withdrawal process is nearing completion.