For years, cyber criminals have exploited digital payment platforms through fraudulent methods such as fake Know Your Customer updates, phishing links and malicious applications. In many cases, victims lost money with little hope of recovery as investigations often took weeks and fraud trails frequently went cold. The RBI now seeks to change that reality by creating a structured pathway for customers to seek compensation after falling victim to unauthorised digital transactions.
Under the new framework, customers who report digital payment fraud within five days of noticing the unauthorised transaction will be eligible to claim compensation of up to Rs 25,000, subject to specified conditions and the outcome of investigations conducted by the concerned financial institutions. The initiative is designed to ensure that victims are not left to bear losses alone as digital payment frauds continue to rise alongside the rapid expansion of Unified Payments Interface transactions, internet banking and mobile-based financial services.
The compensation mechanism, however, represents only one aspect of the RBI's broader strategy. The central bank is also intensifying efforts to strengthen internal risk management systems within banks and financial institutions. Earlier this week, the RBI released draft guidelines on model risk management covering artificial intelligence, machine learning models and automated decision-making systems used across the banking sector.
The connection between fraud compensation and model governance is becoming increasingly important as banks rely more heavily on artificial intelligence-driven systems to identify suspicious transactions, detect fraud patterns and monitor customer activities in real time. Enhanced governance of these models is expected to improve the banking sector's ability to detect and prevent fraudulent activities before customers suffer financial losses.
Ajay Sirikonda, Partner and Leader for Financial Services Risk Management at EY India, described the RBI's draft guidance as a major step forward in addressing artificial intelligence-related risks within the banking industry.
"The RBI's draft guidance is a welcome step that finally gives Indian banks a clear playbook for model and artificial intelligence risk. In some ways it goes further than the United Kingdom's Prudential Regulation Authority or regulators in the United States because it brings artificial intelligence, third-party models and consumer protection into one framework," Sirikonda said.
He further noted that the guidance could accelerate artificial intelligence adoption across the banking sector by reducing regulatory uncertainty.
"The guidance does add governance and explainability requirements, but primarily in areas where the stakes are highest. Elsewhere, it removes the larger obstacle of uncertainty. Banks have delayed artificial intelligence adoption not only because of cost concerns but also because there was no clarity on what was permitted. This guidance provides that clarity. For most use cases, it acts as an accelerator rather than a constraint," he said.
For consumers, the most immediate message from the RBI's framework is the importance of prompt reporting. Customers who notify their banks about unauthorised transactions within the prescribed time frame will have a significantly stronger chance of receiving compensation under the new rules.
The RBI's latest measures signal a decisive effort to enhance customer protection while strengthening the technological safeguards used by banks. As digital transactions continue to dominate India's financial landscape, faster fraud reporting and more robust artificial intelligence-driven monitoring systems are expected to play a critical role in reducing financial crime and improving confidence in the country's digital payment ecosystem.
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