Understanding RBI and NPCI Guidelines on Wrong UPI Transfers for Citizens

By Kaushik Barai, CISA (Certified Information Systems Auditor)

With UPI becoming the backbone of India’s digital payments ecosystem, accidental money transfers to wrong accounts have become a growing concern among citizens. Every week, banks receive thousands of complaints related to incorrect UPI payments. Unfortunately, many users assume that banks can instantly reverse such transactions — which is not entirely correct.

Understanding the regulatory framework and the correct recovery process is essential for every digital payment user.

Why Wrong UPI Transfers Are Difficult to Reverse

UPI transactions are processed in real time. Once the amount is credited to the recipient’s bank account, it becomes part of their available balance. Under existing banking regulations, banks are not permitted to debit a customer’s account without explicit authorization or legal instruction.This is the primary reason why automatic reversal is not possible even if the transfer was accidental.

What NPCI and RBI Mandate

The National Payments Corporation of India (NPCI), which operates the UPI platform, has established a formal Dispute Redressal Mechanism. Under this framework:

• All UPI intermediaries including banks and payment apps are required to provide a grievance reporting facility

• Complaints related to wrong transfers, unauthorized payments, and transaction failures must be accepted and processed

• Status updates must be communicated to the complainant

Additionally, the Reserve Bank of India (RBI) mandates that regulated payment entities maintain a structured grievance resolution system and provides escalation access through the Integrated Ombudsman Scheme.

Are Banks Legally Required to Reverse Wrong Transfers?

The answer is no — reversal is not automatic or mandatory by default.

While banks must initiate recovery efforts, actual refund usually depends on:

• Recipient’s consent

• Availability of funds in recipient’s account

• Outcome of inter-bank verification

This regulatory safeguard exists to prevent unauthorized account debits and misuse of the financial system.

What Banks Are Obligated to Do

Although forced reversal is not permitted, banks are required to:

• Register the complaint

• Contact the receiving bank

• Notify the recipient about incorrect credit

• Request refund authorization

• Cooperate in investigation if fraud is suspected

Failure to follow this process can attract regulatory scrutiny.

What Happens If the Recipient Refuses to Return the Money

If a recipient knowingly retains wrongly credited funds, it may attract legal consequences under provisions related to dishonest misappropriation and breach of trust.

In such situations, the sender has the option to escalate the matter through:

• Bank grievance cell

• RBI Banking Ombudsman

• Cyber crime or police complaint in serious cases

Recommended Action for Citizens

To improve recovery chances, users should:

• Report wrong transfers immediately through the UPI app

• Contact their bank with transaction reference details

• Avoid delays in raising complaints

• Preserve screenshots and transaction records

Early reporting significantly increases the probability of successful recovery.

Need for Greater Public Awareness

From a digital governance and cyber risk perspective, awareness remains the biggest gap. Many disputes arise not due to system failure, but due to user errors such as incorrect mobile numbers or unverified payment confirmations.

As digital payments grow, consumer education must be strengthened alongside technology adoption.

Conclusion

UPI is a powerful financial innovation, but it operates within strict regulatory safeguards. While banks are required to accept complaints and initiate recovery efforts, forced reversals are not permitted under current rules.Citizens must understand both their rights and responsibilities to navigate digital payments safely and effectively.

About the Author:

Kaushik Barai is a Certified Information Systems Auditor (CISA) professional with expertise in digital payment risk management, IT governance, and financial technology controls.