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 for banks to temporarily block debit transactions and accounts suspected to be connected with money-mule activity and cyber-enabled financial fraud.

The proposal is part of the draft Reserve Bank of India (Know Your Customer) Amendment Directions, 2026, and follows a Supreme Court order directing the central bank to establish a Standard Operating Procedure (SOP) for such cases.

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

Banks to impose immediate holds on suspicious accounts

Under the proposed guidelines, transactions of Rs 1,000 or more flagged by banks’ monitoring systems, including artificial intelligence and machine-learning tools, as potentially linked to fraud may be treated as suspicious money-mule activity.

Once such transactions or accounts are identified, banks will have to immediately place temporary debit restrictions. Customers must be informed about the action, reasons for the hold and the process to challenge it.

Account holders will receive 20 days to provide explanations or supporting information regarding the legitimacy of the transaction. After reviewing the response, banks can remove the restriction, continue the hold and report the matter to police authorities, or follow directions issued by law-enforcement agencies.

Debit restrictions capped at 60 days

The RBI has proposed that temporary debit holds should not exceed 60 days unless further instructions are received from law-enforcement authorities. Account-level restrictions must be treated as a last resort and used only in exceptional situations.

Banks will also need safeguards to reduce wrongful restrictions on genuine customers. They will maintain records of debit holds, customer communication, police references and final decisions for at least five years. Records related to closed accounts must be preserved for at least 10 years.

The draft also proposes dedicated grievance mechanisms, with complaints to be resolved within 30 days. The framework will operate alongside existing anti-money laundering obligations, including reporting suspicious transactions to the Financial Intelligence Unit-India (FIU-IND).