The Reserve Bank of India has issued draft amendment directions proposing significant changes to the framework governing customer protection in digital banking transactions for Urban Co-operative Banks (UCBs) and Rural Co-operative Banks (RCBs). The proposed changes are aimed at strengthening safeguards for customers as digital banking usage grows rapidly across the cooperative banking sector.
The draft revises the existing rules related to limiting customer liability in unauthorised electronic banking transactions and introduces a clearer and more detailed definition of “fraudulent electronic banking transactions.”
According to the draft, such transactions will include cases where payments are carried out using credentials obtained through fraud, where approvals are obtained under coercion, or where customers are misled into transferring money to fraudsters through phishing, social engineering or other deceptive tactics.
With digital payment platforms, mobile banking, and UPI-based transactions becoming increasingly common even among customers of cooperative banks, the regulator has emphasised the need for stronger real-time monitoring and customer alert systems.
Under the proposed framework, cooperative banks will be required to send instant SMS alerts for all electronic transactions exceeding Rs 500. In addition, banks must issue email alerts wherever customers have registered their email IDs with the bank. The regulator believes that timely alerts can help customers quickly detect suspicious transactions and report them before further losses occur.
Another key requirement in the draft directions is the creation of round-the-clock reporting mechanisms. Cooperative banks will have to establish 24×7 channels enabling customers to report fraudulent transactions immediately.
These channels may include phone banking services, SMS reporting facilities, dedicated email addresses, interactive voice response (IVR) systems and toll-free helplines. The objective is to ensure that customers can report fraud at any time without procedural delays.
The draft also reiterates the principle of limited customer liability in cases of unauthorised transactions. Customers will have zero liability if the fraud occurs due to negligence or a deficiency on the part of the bank. Similarly, customers will not be held liable for third-party breaches if they report the fraudulent transaction within five calendar days of the occurrence.
Banks will also be required to examine customer complaints and resolve them within a maximum period of 30 days from the date of reporting.
In order to provide additional relief to victims of small-value digital frauds, the regulator has proposed a compensation mechanism for losses up to Rs 50,000. Under this provision, eligible customers may receive compensation equal to 85 percent of the net loss or up to Rs 25,000, whichever is lower, subject to certain conditions specified in the draft guidelines.
The compensation framework will apply to losses that occur within one year from the effective date of the new directions. The proposed amendments are scheduled to come into effect from July 1, 2026.
The Reserve Bank has invited comments and feedback from stakeholders, including cooperative banks, industry bodies and the public, until April 6, 2026, before finalising the revised regulatory framework.
