From January 1, 2027, victims of certain digital banking frauds may no longer have to bear the entire loss. The Reserve Bank of India (RBI) has introduced a new compensation framework that shifts more responsibility onto banks while tightening fraud detection systems. Here's what changes.

For years, victims of phishing scams, fake KYC updates and fraudulent UPI or internet banking transactions often faced an uphill battle to recover their money. Once funds left an account, the chances of getting them back were slim, leaving customers to navigate lengthy investigations with uncertain outcomes.

The RBI's latest directions seek to change that. Under the new framework, individual customers who suffer losses in fraudulent electronic banking transactions (EBTs) of up to ₹50,000 can receive compensation of up to ₹25,000, subject to specified conditions. The rules will be effective for one year starting January 1, 2027.

How much compensation can you get?

The compensation is not a flat ₹25,000.

Eligible customers can receive 85% of the net loss, after deducting any amount already recovered, or ₹25,000, whichever is lower.

For example, if a customer loses ₹20,000 and the bank recovers ₹5,000, the net loss is ₹15,000. The compensation would be 85% of ₹15,000, or ₹12,750.

If the net loss is ₹40,000, the compensation works out to ₹34,000, but the customer will receive the maximum permissible amount of ₹25,000.

The benefit is available only once during a customer's lifetime.

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Who is eligible?

The framework applies only to bona fide individual customers, including sole proprietors, whose total fraudulent transaction amount does not exceed ₹50,000.

Cases involving losses above ₹50,000 are not covered under these directions.

Another key change is that the burden of proving customer liability rests with the bank, giving greater protection to victims during dispute resolution.

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Banks, not RBI, will pay

The compensation will be paid by the bank where the customer holds the account, not by the RBI. Banks will investigate the complaint, calculate the eligible compensation after adjusting recoveries and credit the amount if the customer qualifies under the framework.

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Compensation burden

Under the RBI's framework, the compensation burden is shared between the central bank and participating banks, with the contribution varying based on the value of the fraud and whether the transaction is domestic or cross-border.

For eligible cases involving losses below ₹29,412, the RBI bears the largest share, while the customer's bank and, in domestic transactions, the beneficiary bank contribute the balance. For higher eligible losses—between ₹29,412 and ₹50,000—the compensation is capped at ₹25,000, with predefined contributions from the RBI and banks.

Customers may also receive more than the initial compensation if additional funds are recovered from the fraudsters later. Any subsequent recovery is distributed as per the RBI's prescribed formula, ensuring customers are reimbursed appropriately while allowing the RBI and banks to recoup their contributions.

However, the special compensation framework applies only to fraudulent electronic banking transactions involving losses of up to ₹50,000. Cases exceeding this limit will continue to be handled under the existing recovery and dispute resolution process.

Published on: Jun 26, 2026 5:16 PM IST