RBI to check customer liability in bank frauds

24 May 2016 Evaluate

Reserve Bank of India (RBI) deputy governor SS Mundra has said that the RBI is examining the possibility of issuing regulatory directions on limiting the liability of customers on fraudulent transactions arising out of cards and electronic banking deals. Mundra said that ‘We are discussing this and once we finalise, the limit will be announced. We expect to finalise it very shortly and added that the idea is that the liability for the customer should not go beyond a point’.

Further, Mundra said that it is essential to have a robust mechanism in order to prevent incidents of frauds in mobile Net banking and the electronic fund transfer so as to retain customers' confidence in these delivery channels. At present, a customer’s liability in the event of any unauthorised transaction is the lesser of actual loss at the time of notifying the bank, balance available for withdrawal, withdrawal limit set by the customer for a transaction or Rs10, 000. Mundra pointed out that there has been increasingly large number of cases of mis-selling of third party products to customers by banks, particularly insurance products, including bundling of third-party products with loans. He warned that 'RBI is seized of this issue and may take a strict action, including heavy penalties, if the banking industry continues to follow such unethical and unaccepted practices of mis-selling of third-party products'.

He advised banks to put in place a system of periodic inspections of the sale of third-party products by either own staffs or by direct selling agents (DSAs). Furthermore, he said that with the increase in online transactions, there has been a rise in complaints related to electronic banking transactions, unauthorised fund transfers, fraudulent withdrawals from ATMs using duplicate cards and phising e-mails, among others.

Emphasizing customer awareness for safe usage of these channels should be an important item on the agenda of the bank, the deputy governor said that if customers don't get confidence in the channels and decide to withdraw from them, then it can have only two outcome - either customer would migrate or customer would come back to the traditional channel which would mean higher operating cost for the banking system.

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