The Reserve Bank of India has amended its 2025 responsible business conduct directions for Local Area Banks to introduce a customer protection framework for electronic banking transactions, including card present and card not present transactions. The rules apply to electronic banking transactions undertaken by Local Area Bank customers on or after Jan. 1, 2027. They require each bank to adopt a public policy covering customer rights and obligations, complaint resolution and awareness measures, and to maintain secure transaction systems, fraud detection controls, transaction alerts and round-the-clock fraud reporting channels. The framework sets out how liability must be assigned in fraudulent electronic banking transactions. The burden of proving customer liability rests with the Local Area Bank. Customers have zero liability where the fraud results from bank negligence, regardless of when it is reported, and also in third-party breach cases if the unauthorised transaction is reported within five calendar days. Losses after a customer reports the fraud must be borne by the bank, while customer-negligence cases leave the customer liable until reporting, subject to a compensation mechanism. Local Area Banks must send instant SMS alerts for all electronic banking transactions above INR 500, email alerts where an email address is available, register and acknowledge complaints immediately, resolve domestic complaints within 45 calendar days and cross-border complaints within 60 calendar days, and value-date reversals to the original transaction date. For fraudulent credit card transactions, a shadow reversal must be provided within five calendar days of customer notification. The amendment also creates a limited compensation scheme for bona fide individual victims, including sole proprietors, in customer-negligence cases involving gross losses of up to INR 50,000. Eligible customers who report the fraud both to the National Cyber Crime Reporting Portal or Helpline 1930 and to the Local Area Bank within five calendar days can receive 85 per cent of net loss, capped at INR 25,000, once in their lifetime. The Reserve Bank of India and the relevant banks share the compensation cost under set formulas, and the compensation mechanism applies to losses from fraudulent electronic banking transactions occurring for one year from the effective date.
Reserve Bank of India2026-06-24
Reserve Bank of India sets electronic banking fraud protection and compensation rules for Local Area Banks
The Reserve Bank of India has introduced customer protection rules for fraudulent electronic banking transactions at Local Area Banks, effective for transactions undertaken on or after Jan. 1, 2027. The framework requires transaction alerts, 24x7 reporting channels, complaint handling timelines and clear liability rules, including zero liability in bank-negligence cases and for timely reported third-party breaches. It also creates a one-year compensation mechanism for certain bona fide individual victims with losses up to INR 50,000, paying 85 per cent of net loss up to INR 25,000.