Daijiworld Media Network – Mumbai
Mumbai, Feb 9: In a major push to strengthen consumer protection, the Reserve Bank of India (RBI) has proposed compensating customers affected by small-value digital frauds, with payouts of up to Rs 25,000, as part of a comprehensive overhaul of its customer protection framework.
Under the proposed measures, victims of digital fraud would be eligible for compensation amounting to 85 per cent of the loss or Rs 25,000, whichever is lower. The benefit will be available as a one-time relief in a lifetime, including to customers who may have shared one-time passwords (OTPs).
RBI Governor Sanjay Malhotra said the central bank has reviewed its 2017 framework on limiting customer liability in unauthorised electronic banking transactions, noting the rapid expansion of digital banking and payment systems. He said draft revised instructions, including a compensation framework for small-value fraudulent transactions, will be issued shortly for public consultation.
The governor added that while customers should ideally learn from past incidents, the RBI has decided to provide relief to first-time fraud victims, under which 70 per cent of the loss will be compensated, while the remaining 30 per cent will be shared equally by the bank and the customer.
Alongside digital fraud, the RBI is also tightening norms to curb mis-selling of financial products by regulated entities. Malhotra said mis-selling has serious consequences for both customers and institutions, stressing the need to ensure that third-party products sold at bank counters are suitable for customers and aligned with their risk appetite.
To address this, the central bank plans to issue comprehensive instructions covering advertising, marketing and sales of financial products and services, with draft guidelines to be placed in the public domain soon.
The RBI will also review and harmonise rules governing loan recovery practices and the engagement of recovery agents, an area that has attracted frequent complaints. Draft norms aimed at standardising conduct-related instructions across regulated entities will be released for public feedback.
Meanwhile, the RBI also provided an update on the withdrawal of Rs 2,000 denomination currency notes, stating that 98.42 per cent of the notes issued earlier have been returned to the banking system. As of January 31, 2026, Rs 2,000 notes worth Rs 5,609 crore remain in circulation, compared to Rs 3.56 lac crore at the time the withdrawal was announced on May 19, 2023.
The central bank said the facility to deposit or exchange Rs 2,000 notes has been available at all RBI branches since October 7, 2023, and at all 19 RBI issue offices for direct account credit from October 9, 2023. The public can also send these notes through post offices for credit to their bank accounts.
Clarifying the procedure, the RBI said there is no ceiling on the amount of Rs 2,000 notes that can be deposited, subject to existing KYC and cash deposit norms. The bank reiterated that Rs 2,000 notes remain legal tender, but advised those still holding them to deposit the notes at the earliest, as the withdrawal process is nearing completion.