In a major step to strengthen customer protection in the digital payments ecosystem, the Reserve Bank of India (RBI) on Friday proposed a framework to compensate customers for losses arising from small-value fraudulent transactions, with a cap of Rs 25,000.
“There is skin in the game for the customer (15%), banks (15%) and the remaining amount we propose to provide from the Reserve Bank. But for small customers, for whom even these amounts mean a lot, this is a way of providing some immediate relief,” Malhotra said.
The decision to do this comes from the RBI’s observation that around 65% of frauds happen in the below Rs 50,000 category.
Shared Responsibility for Safety
Under the proposed framework, compensation would be capped at the lower of 85% of the loss or Rs 25,000. For instance, on a loss of Rs 50,000, 85% comes to Rs 42,500, but the payout will be limited to Rs 25,000. In another scenario, if the loss is Rs 20,000, 85% equals Rs 17,000, which will be fully compensated, while the remaining Rs 3,000 will be borne by the customer.
RBI Deputy Governor Shirish Chandra Murmu added that this would be a one-time compensation. For customers who are defrauded more than once, the governor said that they should be cautious and alert about not making the same mistake again. When asked about how the compensation would be financed, RBI Deputy Governor Swaminathan J clarified that the compensation amount would not be paid from the unclaimed deposits collected by the central bank. “Unclaimed deposits belong to the customers. We have a Deposits Education and Awareness Fund where we have adequate income surplus, so we may use that,” Swaminathan said.
Welcoming the move, State Bank of India CS Setty said the proposal is unlikely to impose additional costs on banks. “This is more about protecting customers and strengthening the responsibility of the entire financial ecosystem to ensure safer digital transactions,” Setty told CNBC. Setty said that around 70-80% of the transactions in SBI happen digitally, making customer protection extremely vital.
Beyond Compensation
The governor also announced that the RBI would publish a discussion paper on possible measures to enhance the safety of digital payments. Such measures may include introduction of lagged credits, additional authentication for specific classes of users like senior citizens, among others.