DOR.MCS.REC.No. /01-01-037/2025-26 March xx, 2026 Draft Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Third Amendment Directions, 2026 Instructions on 'Limiting Liability of Customers in Unauthorised Electronic Banking Transactions' for Urban Co-operative Banks (hereinafter referred to collectively as "UCBs" and individually as a "UCB") have been consolidated in the Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025. Upon a review, it has been decided to issue revised instructions on the subject. 2. In exercise of the powers conferred by Sections 35A and 56 of the Banking Regulation Act,1949, the Reserve Bank, being satisfied that it is necessary and expedient in public interest so to do, hereby issues the Amendment Directions hereinafter specified. 3. Short Title and Commencement (1) These Directions shall be called the Reserve Bank of India (Urban Co-operative Banks - Responsible Business Conduct) Third Amendment Directions, 2026. (2) These Directions shall apply in cases of electronic banking transactions undertaken by customers of an UCB on or after July 1, 2026. 4. These Amendment Directions shall modify the Reserve Bank of India (Urban Co-operative Banks – Responsible Business Conduct) Directions, 2025 as under: (1) In paragraph 4, the following definition shall be inserted after sub-paragraph 4(3), namely: "4(3A) Authorised electronic banking transaction includes: (i) a transaction carried out by a customer or a previously authorised third-party registered with the UCB by granting approval through a standing instruction / mandate or any form of additional authentication such as a static password or dynamic password (e.g. OTP), answering challenge questions, card details (CVV / Expiry date / PIN) or any other mode of electronic authentication option provided by the UCB; or (ii) a transaction which is (a) executed by a third-party using the credentials obtained from the customer through fraudulent means; or (b) executed by the customer by granting approval under coercion or duress from the third-party; or (c) executed by the customer when he / she is tricked into willingly sending money to a scammer who is posing as a legitimate recipient.". (2) In paragraph 4, the following definitions shall be inserted after sub-paragraph 4(5A), namely: "4(5B) Card Not Present transaction shall have the same meaning as given in the Reserve Bank of India (Authentication Mechanisms for Digital Payment Transactions) Directions, 2025. 4(5C) Card Present transaction shall have the same meaning as given in the Reserve Bank of India (Authentication Mechanisms for Digital Payment Transactions) Directions, 2025.". (3) In paragraph 4, the following definition shall be inserted after sub-paragraph 4(9C), namely: "4(9D) Electronic banking transaction shall have the same meaning as 'electronic funds transfer' given in Section 2(c) of the Payment and Settlement Systems Act, 2007 and inter alia include both Card Not Present and Card Present transactions.". (4) In paragraph 4, the following definition shall be inserted after sub-paragraph 4(14), namely: "4(14A) Fraudulent electronic banking transaction means an authorised electronic banking transaction falling under categories listed at paragraph 4(3A) (ii) above and an unauthorised electronic banking transaction as defined at paragraph 4(25B) below.". (5) In paragraph 4, the following definition shall be inserted after sub-paragraph 4(19), namely: "4(19A) Negligence by a UCB inter alia includes the following actions by the UCB: (i) not putting in place the mandated systems and procedures to ensure safety and security of electronic banking transactions; or (ii) not sending mandatory alerts for electronic banking transactions; or (iii) not providing the mandated channels for reporting of fradulent electronic banking transactions or loss of payment instruments such as card; or (iv) not acting diligently upon a customer notification regarding unauthorised electronic banking transaction(s) or loss of payment instrument(s); or (v) system malfunctions / security breaches / internal frauds leading to unauthorised electronic banking transactions. 4(19B) Negligence by a customer inter alia includes the following actions by the customer: (i) providing credentials such as PIN, password, OTP or other details for carrying out transactions to another person, whether intentionally or otherwise; or (ii) not notifying the UCB immediately after finding out about an a fraudulent electronic banking transaction or loss of a payment instrument; or (iii) not paying attention to specific, directed and clear warnings from the UCB that a prospective transaction is likely a scam; or (iv) failing to exercise reasonable care in usage of credentials, e.g., writing down and storing the PIN with an ATM / credit card; or (v) downloading malicious apps.". (6) In paragraph 4, the following definitions shall be inserted after sub-paragraph 4(25), namely: "4(25A) Third-party breach refers to a situation where the deficiency lies neither with the UCB nor with the customer but lies elsewhere in the system and includes deficiency on the part of an intermediary such as a Third-Party Application Provider (TPAP), Payment Aggregator (PA), Payment Gateway (PG), Telecom Service Provider (TSP), etc." 4(25B) Unauthorised electronic banking transaction means an electronic banking transaction which does not qualify as an authorised electronic banking transaction.". (7) In Chapter IV on 'Customer Guidance and Protection', the section C. Limiting Liability of Customers in Unauthorised Electronic Banking Transactions and paragraphs 53 to 65 thereunder shall be deleted and substituted with the following section and paragraphs, namely: "CA. Customer Protection in Electronic Banking Transactions CA.1 Policy 65.1A. A UCB, keeping in view the instructions contained in these Directions, shall formulate a policy to cover aspects of customer protection in electronic banking transactions, such as: (1) channels for alerting customers about occurrence of electronic banking transactions; (2) define the rights and obligations of customers in case of electronic banking transactions, including fraudulent electronic banking transactions, after taking into account the risks to customers arising out of customer negligence / UCB negligence / banking system frauds / third-party breaches in specified scenarios; (3) timeline for resolution of complaints and disclosure to customer; and (4) mechanism for creating customer awareness on their rights and obligations in electronic banking transactions along with the risks involved. The policy must be transparent, non-discriminatory and shall be displayed on the UCB's website along with the details of grievance handling / escalation procedure. 65.1B. A UCB shall design its systems and procedures to make customers feel safe about carrying out electronic banking transactions. To achieve this, the UCB shall put in place: (1) appropriate systems and procedures to ensure safety and security of electronic banking transactions carried out by customers; (2) robust and dynamic fraud detection and prevention mechanism; (3) mechanism to assess the risks (for example, gaps in the UCB's existing systems) arising from fraudulent electronic banking transactions and measure the liabilities arising out of such events; (4) appropriate measures to mitigate the risks and protect themselves against the liabilities arising therefrom; and (5) a system of continually and repeatedly making the customers aware about evolving electronic banking and payments related frauds and the ways to protect themselves from such frauds. CA.2 Alerts for electronic banking transactions 65.1C. A UCB shall ask its customer, availing the facility of electronic banking transactions (other than ATM cash withdrawals), to mandatorily provide his / her mobile number and wherever available, email address, to the UCB. 65.1D. A UCB shall mandatorily send instant SMS alerts to the customers for all electronic banking transactions of value more than ₹500. For electronic banking transactions of value up to ₹500, a UCB may decide to send instant SMS as per its internal policy. 65.1E. A UCB shall send email alerts for all electronic banking transactions, wherever email address is provided by the customer. 65.1F. SMS and email alerts as above shall be in addition to any other form of alerts, e.g., in-app / push notifications, etc., which the UCB may send as per its internal policy. CA.3 Reporting of fraudulent electronic banking transactions by customers to UCBs 65.1G. A UCB shall advise its customers that on occurrence of any fraudulent electronic banking transaction, they should notify the UCB and also lodge a complaint through National Cyber Crime Reporting Portal or National Cyber Crime Helpline (1930) at the earliest. The UCB shall also inform its customers that the longer the time taken to notify the UCB, the higher will be the risk of loss to customer and also to the UCB. To facilitate the same, the UCB shall: (1) provide customers with 24x7 access through multiple channels including via phone banking, SMS, e-mail, IVR, a dedicated toll-free helpline, reporting to home branch, etc., for reporting fraudulent electronic banking transactions that have taken place and / or loss or theft of payment instrument such as card, etc.; (2) provide a number in the transaction alert SMS itself, to which the customer can immediately send an SMS to notify his / her objection, if any; and (3) provide a direct link on the home page of its website for reporting fraudulent electronic banking transactions. 65.1H. The UCB's communication systems, deployed for sending alerts and receiving the responses thereto, shall record the date and time of delivery of the message and receipt of customer's response, if any. 65.1I. A UCB shall ensure that its system registers the reporting of the fraudulent electronic banking transaction as a complaint and sends an immediate acknowledgement to the customer along with the complaint number and the date and time of receipt of the complaint. 65.1J. On receipt of a complaint regarding any fraudulent electronic banking transaction from a customer, a UCB shall take immediate steps to prevent further unauthorised electronic banking transactions in his / her account under advice to the customer. CA.4 Processing of Complaints and Establishing Liability in Fraudulent Electronic Banking Transactions 65.1K. The burden of proving customer liability in complaints involving fraudulent electronic banking transactions shall lie on the UCB. Accordingly, it shall examine and classify each complaint under the relevant categories of electronic banking transactions as defined in these directions. 65.1L. A customer shall be entitled to zero liability and reversal of the transaction in cases where the fraudulent electronic banking transaction occurs due to negligence / deficiency on the part of the UCB (irrespective of whether the transaction is reported by the customer or not) and in cases of third-party breach where the customer reports the unauthorised fraudulent electronic banking transaction to the UCB within five calendar days from the date of its occurrence. 65.1M. In cases of third-party breach reported to the UCB after five calendar days, the customer shall be compensated, in eligible cases, for his / her loss as per the provisions detailed at paragraph 65.1T below. In cases of third-party breach not eligible for compensation as per these provisions, the customer's liability shall be determined as per the UCB's policy. 65.1N. In cases where the fraudulent electronic banking transaction occurs due to negligence by the customer, he / she shall be liable for the loss incurred by him / her, to the extent of loss not eligible for compensation as per the mechanism detailed at paragraph 65.1T below, until he / she reports the fraudulent electronic banking transaction to the UCB. 65.1O. Loss arising from any unauthorised transaction occurring after the reporting of the fraudulent electronic banking transaction by a customer to a UCB shall be borne by the UCB. 65.1P. The UCB may also, at its discretion, decide to waive off any customer liability in case of fraudulent electronic banking transactions. 65.1Q. A UCB shall ensure that complaints involving fraudulent electronic banking transactions are examined, liability therein is established and response, as applicable, is issued to the customer within such time as may be specified in the UCB's policy, but not exceeding 30 calendar days from the date of receipt of the complaint. In cases where the customer is entitled to zero liability as provided at paragraph 65.1L above, the response shall also include details of reversal of the transaction(s) concerned. In cases falling under either paragraph 65.1M or 65.1N above, the response shall include details regarding the compensation mechanism prescribed at paragraph 65.1T below 65.1R. In cases where the UCB is required to reverse a fraudulent electronic banking transaction, it shall ensure that the reversal is value dated to its original date of occurrence and the customer does not suffer loss of interest or bear any additional burden of interest / charges, as applicable. 65.1S. In case of rejected complaints i.e., in cases where customer liability is established, a UCB shall disclose the reason for such rejection (along with supporting details such as OTP logs, SMS logs, transaction logs, etc.) to the customer. CA.5 Compensation for Small Value Fraudulent Electronic Banking Transactions 65.1T. (1) A bona fide victim, being an individual person and having lodged a complaint involving gross loss of an amount up to ₹50,000 on account of fraudulent electronic banking transaction(s) covered under paragraphs 65.1M and 65ZN above, shall be compensated 85 per cent of the net loss amount (calculated after reducing recoveries made, whether before or after paying the compensation, from the gross loss amount), or ₹25,000, whichever is less, once during his / her lifetime, subject to the following: (a) loss is established to be bona fide, as per the internal processes covered in the UCB's policy, and (b) the victim has reported the fraudulent electronic banking transaction(s) on the National Cyber Crime Reporting Portal or National Cyber Crime Helpline (1930) and to the UCB within five calendar days from its occurrence. Explanation: In case of joint account(s), only one of the account holders may submit a claim for compensation. The customer availing compensation as a joint account holder shall not be eligible for claiming compensation in his / her capacity as a single account holder in future and vice versa. (2) (a) For a complaint related to fraudulent electronic banking transaction(s) involving a loss amount of less than ₹29,412, where a compensation of 85 per cent is paid, 65 per cent shall be borne by the Reserve Bank, 10 per cent by the customer's bank and the remaining 10 per cent by the beneficiary bank. (b) For a complaint related to fraudulent electronic banking transaction(s) involving a loss amount of ₹29,412 or more but up to ₹50,000, where a compensation of ₹25,000 is paid, the Reserve Bank, the customer's bank and the beneficiary bank shall contribute ₹19,118, ₹2,941 and ₹2,941 respectively towards the compensation. (3) In case any recovery is made in relation with a complaint involving fraudulent electronic banking transaction(s) after the compensation is paid, the customer's bank shall recalculate the compensation payable on the net loss amount and accordingly make additional payment from the recovered amount after factoring in the excess amount of compensation, if any, paid before the recovery. Illustration 1: Amount reported lost under the complaint – ₹40,000 Recovery made & credited to customer before compensating – ₹15,000 Net loss faced by the customer - ₹25,000 Compensation to be paid to the customer (85% of net loss) – ₹21,250 Contribution of Reserve Bank - ₹16,250 Contribution of customer's bank and beneficiary bank - ₹2,500 each Illustration 2: Amount reported lost under the complaint – ₹40,000 Compensation paid to the customer – ₹25,000 Contribution of Reserve Bank - ₹19,118 Contribution of customer's bank and beneficiary bank - ₹2,941 each Recovery made - ₹40,000 Apportionment of recovery shall be as under: To customer – ₹15,000 To Reserve Bank - ₹19,118 To customer's bank and beneficiary bank – ₹2,941 each Illustration 3: Amount reported lost under the complaint – ₹40,000 Compensation paid to the customer – ₹25,000 Contribution of Reserve Bank - ₹19,118 Contribution of customer's bank and beneficiary bank - ₹2,941 each Recovery made after compensation is paid - ₹15,000 Net loss - ₹25,000 Compensation payable – ₹21,250 Additional amount payable - ₹15,000 + ₹21,250 - ₹25,000 = ₹11,250 Apportionment of recovery shall be as under: To customer – ₹11,250 To Reserve Bank - ₹19,118 – 16,250 = ₹2,868 To customer's bank and beneficiary bank – ₹2941 - ₹2,500 = ₹441 each (4) Based on its examination, where the UCB is satisfied that the complaint is bona fide, it shall provide the customer an application form as per the format provided at Annex II(1) to claim compensation for the loss suffered by him / her. (5) The UCB shall, within five calendar days of receipt of the application from a customer, compensate the customer as given above. (6) The UCB shall seek reimbursement of the applicable amount from the Reserve Bank on a quarterly basis. 65.1U. The compensation shall be payable for losses incurred on fraudulent electronic banking transactions occurring up to one year from the effective date of these directions. CA.6 Monitoring Mechanism 65.1V. A UCB shall put in place a suitable mechanism and structure for periodic reporting of complaints involving fraudulent electronic banking transactions to the Board or one of its Committees. The reporting shall, inter alia, include volume / number of cases and the aggregate value involved and distribution across various categories of cases, viz., card present transactions, card not present transactions, internet banking, mobile banking, ATM transactions, etc. The Board or its Committee shall periodically review the fraudulent electronic banking transactions reported by customers, the action taken thereon, functioning of the grievance redressal and compensation mechanism, etc., and take appropriate measures to improve the systems and procedures." (8) In Chapter IV on 'Customer Guidance and Protection', paragraph 40 shall be substituted by the following, namely: "A UCB shall not levy any charges on its customers for SMS sent in compliance to extant regulations or those sent for promotional / marketing / customer awareness purposes. In case of SMS sent for other purposes, the UCB may levy or waive charges as per its internal policy." (9) In Annexures, the following Annexure shall be inserted after Annex II, namely: "Annex II(1) - Application Form for Compensation for Small Value Fraudulent Electronic Banking Transactions The Branch Manager, Date: _______________ ______________________ Bank ______________________Branch Madam/ Dear Sir, Application for Compensation for Small Value Fraudulent Electronic Banking Transactions Please refer to my complaint lodged with National Cyber Crime Reporting Portal (https://cybercrime.gov.in/Default.aspx) / National Cyber Crime Helpline (1930) with reference / complaint no. _________________ regarding the fraudulent electronic banking transaction(s) in my bank account / credit card no. _______________________. 2. I understand that compensation for small value fraudulent electronic banking transactions is available to an individual only once and declare that I have not previously availed such a compensation from any bank. 3. As per the advice dated ________________ received from the bank, an amount of ₹__________________ (Rupees ____________________________________ only) may please be credited to my aforesaid bank account / credit card. Signature of the applicant: Name of applicant: _____________________ Aadhaar No. (mandatory): _________________________ Address: _____________________________ __________________________________ __________________________________ __________________________________ Contact No.: _______________________ Email Address: _____________________ FOR OFFICE USE (may be modified by the UCB as per its own requirement) _________________________________________________". (Veena Srivastava)
Chief General Manager |