RBI Proposes 60-Day Debit Freeze On Suspected Fraud Accounts Under New Money Mule Rules

The Reserve Bank of India (RBI) has proposed a uniform framework allowing banks to temporarily restrict debit transactions from accounts suspected of being linked to money-mule activity and cyber-enabled financial fraud.

The proposal is part of the draft RBI (Know Your Customer) Amendment Directions, 2026, which follows a Supreme Court order directing the central bank to establish a standard operating procedure (SOP) for dealing with suspected money-mule accounts.

The proposed framework will cover commercial banks, including small finance banks, payments banks, regional rural banks and local area banks, as well as urban cooperative banks. It is expected to come into effect from April 1, 2027, unless banks choose to implement it earlier.

What happens when a suspicious transaction is detected?

Under the proposed rules, transactions of Rs 1,000 or more flagged by a bank's monitoring systems as potentially linked to cyber-enabled financial fraud or money-mule activity may trigger a temporary debit hold.

Banks can use transaction-monitoring systems, including artificial intelligence and machine-learning tools, to identify suspicious activity. Once a transaction or account is flagged, the bank can temporarily restrict debit transactions while the matter is reviewed.

Customers must be informed about the debit restriction, the reason for the action and the process for challenging the hold.

Customers will get 20 days to respond

The proposed framework gives account holders 20 days to provide an explanation or supporting documents regarding the flagged transaction.

After reviewing the customer's response, the bank can remove the restriction, continue the hold and report the matter to the police or follow directions issued by law-enforcement agencies.

The framework is intended to provide banks with a standardised and time-bound process while also protecting genuine customers from prolonged restrictions.

Debit hold capped at 60 days

The RBI has proposed that temporary debit restrictions should generally not exceed 60 days, unless further instructions are received from law-enforcement authorities or another competent authority.

Importantly, the proposed framework also provides safeguards against unnecessarily freezing an entire account. The latest reports indicate that the disputed amount can be targeted rather than automatically restricting all funds in an account.

Account-level restrictions are expected to be used only in exceptional circumstances and as a last resort.

Banks to maintain records and grievance mechanism

Banks will be required to maintain records of debit holds, customer communications, police references and subsequent decisions.

Records relating to temporary debit restrictions will have to be retained for at least five years, while records relating to accounts that are subsequently closed must be preserved for at least 10 years.

The proposed framework also requires banks to establish grievance-redressal mechanisms and resolve customer complaints relating to the process within 30 days.

The new SOP will operate alongside existing anti-money laundering and KYC requirements, including the obligation to report suspicious transactions to the Financial Intelligence Unit-India (FIU-IND).

Why has RBI proposed the new rules?

Money-mule accounts are bank accounts used to receive, transfer or move funds obtained through illegal activities, including cyber fraud. Such accounts can make it difficult for authorities to trace the flow of stolen money.

The proposed framework follows a Supreme Court direction asking the RBI to establish a uniform procedure for banks dealing with cyber fraud, including temporary debit holds on suspected accounts and a grievance-redressal mechanism.

The RBI's proposed rules aim to strike a balance between taking quick action against suspected cyber fraud and ensuring that genuine customers do not face unnecessary or prolonged restrictions on their bank accounts.