Vinodh Prasad
Monday, 9 February 2026
The Reserve Bank of India (RBI) has unveiled a groundbreaking proposal to enhance consumer protection against small-scale digital fraud. Under this new framework, victims may receive compensation of up to ₹25,000 for losses from fraudulent transactions, even when they have inadvertently shared their one-time passwords (OTPs).
Announced in a circular dated February 7, 2026, this initiative arrives as digital transactions in India soar, surpassing ₹7 lakh crore in the last fiscal year. This surge has been accompanied by a rise in fraudulent activities, prompting the RBI to act decisively to reinforce trust in digital payment systems amid growing cybersecurity threats.
The guidelines require banks and financial institutions to establish efficient mechanisms for rapid claims processing. The RBI mandates that eligibility for compensation must be determined within 30 days of a fraud report. Non-compliance could result in penalties, including fines up to ₹10 lakh, as stipulated under Section 47 of the Payment and Settlement Systems Act, 2007.
Previously, the onus of proof often fell on consumers, especially when OTPs were shared. The RBI's acknowledgment of these challenges marks a pivotal shift, aiming to increase accountability among service providers. The circular emphasizes, 'Consumers deserve protection from fraud, irrespective of their actions during a transaction.'
Financial institutions are now tasked with strengthening their systems against such frauds and educating consumers on secure digital practices. The RBI's proposal not only seeks to provide financial relief but also to cultivate a culture of security and awareness in digital transactions.
As the framework's implementation approaches, banks and financial institutions face critical compliance deadlines. They must adjust their operational procedures and customer support systems to align with the new guidelines. The RBI plans to conduct periodic compliance reviews, with an initial assessment set for six months after implementation.
This initiative not only fortifies consumer rights but also underscores the RBI's role as a proactive regulator addressing the challenges of digital fraud. Financial sector stakeholders are urged to prepare for these changes to ensure compliance and effectively protect their customers against fraud.
What You Need to Know
RBI proposes compensation up to ₹25,000 for digital fraud victims, even if OTP was shared, per February 7, 2026, circular.
Consumers, banks, and financial institutions are affected, requiring new fraud claim processing mechanisms and compliance with RBI guidelines.
Shifts liability, holding financial institutions accountable for digital fraud, setting precedent for consumer protection in digital transactions.
Review fraud claim processes, update customer support systems, and ensure compliance with RBI guidelines to avoid penalties under Section 47.
RBI proposes up to ₹25,000 compensation for small digital frauds, boosting consumer protection in India's digital economy.
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