The rapid integration of 'Expert Systems' and artificial intelligence in the Indian banking sector has fundamentally altered the traditional banker-customer relationship. While the Banking Regulation Act, 1949 and subsequent regulatory frameworks laid the foundation for institutional governance, the contemporary reliance on algorithmic decision-making introduces novel challenges in accountability. This research paper examines the systemic shifts in liability concerning digital bank frauds, specifically analyzing how algorithmic opacity conflicts with traditional secrecy obligations and statutory compliance under the Prevention of Money Laundering Act (PMLA), 2002. By mapping the intersection of new banking technologies with evolving fraud typologies, this research proposes a revised liability framework for modern financial institutions.
Utilizing recent RBI data, which reports over 36,000 digital banking frauds in a single fiscal year, alongside qualitative case studies of systemic failures such as the Bank of Baroda 'boB World' app vulnerability and the Paytm Payments Bank algorithmic compliance collapse, this paper argues that traditional legal paradigms are insufficient. The research ultimately emphasizes the necessity for proactive regulatory monitoring, transparent data governance, and rigorous corporate compliance mechanisms that enforce a strict 'Duty of Algorithmic Care' upon banking institutions.