Electronic Transactions Vulnerable to Fraud: RBI Directives and Customer Liability

Strategic Insights -

The Reserve Bank of India (RBI) has directed banks to set up systems and procedures to ensure the safety and security of electronic banking and payments, following a technical glitch at UCO Bank that resulted in erroneous transfers amounting to ₹820 crore. This incident has raised concerns about account safety and what customers can do in case of such fraudulent or erroneous debits or credits. The RBI has classified electronic transactions into online and face-to-face transactions, directing banks to assess and mitigate potential liabilities arising from unauthorised transactions.

Key Takeaways:

  • The RBI has classified electronic transactions into online and face-to-face transactions, with banks required to set up robust fraud detection and prevention mechanisms.
  • Banks must assess and mitigate potential liabilities arising from unauthorised transactions, including advising customers on how to protect themselves from electronic banking and payments-related fraud.
  • Banks must provide customers with facilities to report unauthorised transactions, including a website, phone banking, SMS, email, IVR, and a dedicated toll-free helpline.
  • A direct link for lodging complaints should be provided on the bank's home page, with the reporting system ensuring immediate acknowledgement of the complaint.
  • Customers have zero liability when unauthorised transactions occur due to contributory fraud, negligence, or deficiency on the part of the bank.
  • The RBI rules state that customers have zero liability if they notify the bank within three working days of receiving the communication of the unauthorised transaction.
  • Customers are liable for loss due to unauthorised transactions where it can be proven that payment credentials were shared.
  • The maximum liability for customers in cases of unauthorised transactions varies depending on the type of account, with limits up to ₹25,000 for accounts above a certain threshold.

Statistics:

  • ₹820 crore: the total amount of erroneous transfers made by UCO Bank.
  • ₹5,000: the maximum liability for customers for unauthorised transactions in basic savings accounts.
  • ₹10,000: the maximum liability for customers for unauthorised transactions in other savings, current accounts, and credit cards.
  • ₹25,000: the maximum liability for customers for unauthorised transactions in accounts above a certain threshold.
  • 3 working days: the time frame within which customers must notify the bank to avoid liability for unauthorised transactions.
  • 4-7 working days: the time frame within which customers must notify the bank to benefit from limited liability for unauthorised transactions.

Sources:

  • Reserve Bank of India. (No date). Directions for Ensuring Safety and Security of Electronic Banking and Payment Transactions.
  • UCO Bank. (No date). Erroneous Transfers Amounting to ₹820 Crore through IMPS System.