RBI Governor announces additional measures to protect customers: ₹25,000 for digital frauds, scheme reviews & more

The Reserve Bank of India (RBI) on Friday unveiled a set of measures aimed at protecting customers, including compensation for those who fall prey to minor frauds, as well as plans to curb the mis-selling of financial products.

Governor Sanjay Malhotra said that the central bank will issue three draft guidelines for customer protection. The first concerns mis-selling; the second, the recovery of loans and the engagement of recovery agents; and the third, limiting customer liability for unauthorized electronic banking transactions.

“It is also proposed to introduce a framework to compensate customers up to an amount of ₹25,000 for loss incurred in small-value fraudulent transactions,” said Malhotra.

Customers who fall prey to small-value digital frauds will receive 85% of the value of the fraud, up to ₹25,000, whichever is lower. This will be given once for every customer who faces such fraud and will not be available after that.

“We want the customer to be alert after making a mistake once. He/she should rectify the mistake. A mistake can be forgiven once, and we are compensating for that mistake,” said Malhotra.

Malhotra said that a person should learn from others' mistakes, but if not from others, then at least from their own mistakes.

For instance, someone has lost ₹50,000 in a digital fraud. Then, 85% of that will be ₹42,500, and since the limit is ₹25,000, the person will get ₹25,000. In the second case, someone has lost ₹20,000, and 85% of that will be ₹17,000. That person will get ₹17,000.

Binod Kumar, chief executive of state-owned Indian Bank, said that the proposed fraud framework, focusing on improving customer centricity and grievance redressal across the banking system, will enhance customer trust and service quality.

“Most customer frauds arise from gaps in the system that allow bad actors into banking,” said Vivek Singh, vice-president, risk products at integrated identity platform IDfy.

Singh said that close to 5% of fully digital onboarding attempts are rejected at the KYC stage due to high-risk indicators. “The RBI holding regulated entities accountable should lead to stronger onboarding and monitoring frameworks, and greater trust in the system,” said Singh.

‘Significant consequences’

Meanwhile, RBI said in a statement that mis-selling financial products and services by any regulated entity has significant consequences for both customers and the entity.

“There is a felt need to ensure that third-party products and services that are being sold at the bank counters are suitable to customer needs and are commensurate with the risk appetite of individual clients,” it said.

RBI said that it has therefore decided to issue comprehensive instructions to regulated entities, such as banks and non-banks, on advertising, marketing, and the sale of financial products and services. “The draft instructions in this regard shall be issued shortly for public consultation,” it said.

Malhotra said that misselling has been a concern, and while there have been directions on it, this time, RBI has decided to codify it.

The RBI statement also said that currently, there are different sets of instructions for different categories of lenders regarding the engagement of recovery agents and their conduct. It will now review and harmonize all conduct-related instructions on the engagement of recovery agents and other aspects of loan recovery.

Bhavin Patel, co-founder and chief executive at peer-to-peer lending firm LenDenClub, said that the proposed guidelines on preventing misselling, ensuring fair and transparent recovery practices, and clearly defining limited liability in unauthorized electronic transactions create greater accountability across the lending ecosystem.

“At a time when digital adoption is accelerating alongside fraud risks, these measures help reduce fear, encourage timely reporting, and ensure that customers are not penalized for circumstances beyond their control,” said Patel.