India’s Supreme Court has urged the Reserve Bank of India to impose enforceable compensation rules on banks and financial institutions whose weak safeguards allow digital fraudsters to steal customers’ money.
India’s Supreme Court has told the Reserve Bank of India that any new rules aimed at curbing “digital arrest” scams and cyber fraud must make banks and other financial institutions pay for losses where they failed to exercise proper care. The bench said victims should not be left bearing the cost when weaknesses in a bank’s systems or checks helped fraudsters succeed, and argued that compensation should at least match the amount stolen.
The case arose from a suo motu proceeding after an elderly couple lost ₹1.05 crore to fraudsters who allegedly used forged judicial orders to deceive them. Chief Justice Surya Kant said banks ought to function as a “protective umbrella” for customers, particularly when transactions appear out of step with a person’s normal account activity. He questioned why a sudden large withdrawal from a pensioner’s account should not trigger immediate intervention before the money disappears.
The court pressed the RBI to go beyond awareness campaigns and technical guidance, and instead build in enforceable liability. It discussed temporary suspension of suspicious transfers, automated alerts, physical verification and stronger reporting requirements. Justice Joymalya Bagchi asked why financial institutions should escape strict responsibility when their own systems are exploited, while the Chief Justice said banks would not alter their behaviour without the threat of penalties. The bench also said it wanted the RBI’s draft regulations and a list of authorised institutions before the next hearing, scheduled for November 30, 2026.
Appearing for the RBI, Attorney General R. Venkataramani said bank employees had helped prevent some fraud and told the court complaints had fallen by about 50%. He asked for time to complete the technical integration needed for the new framework, suggesting notifications could be issued by November 30 and the rules put into effect by December 31. Senior advocate N. S. Nappinai, acting as amicus curiae, said the scams persisted despite repeated warnings, while the judges also discussed possible safeguards such as an opt-in WhatsApp “kill switch”, longer call warnings and simultaneous alerts. Another concern raised was the misuse of SIM cards, with the court directing state police chiefs to report on first information reports, investigations and preventive steps.
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