Bank Account Flagged Over Cyber Fraud, Will All Your Money Be Frozen?
Mumbai: The Reserve Bank of India (RBI) has proposed a targeted system for handling suspicious transactions linked to cyber fraud or money-mule accounts. Under the framework, banks would freeze only the disputed amount instead of blocking the customer's entire account. The draft rules are expected to take effect from April 1, 2027, though banks may implement them earlier. The RBI has invited…
The Reserve Bank of India (RBI) has introduced a proposed system to address suspicious transactions related to cyber fraud or money mule accounts. Under this framework, banks would freeze only the disputed amount rather than freezing the entire customer account. The draft rules are set to become effective from April 1, 2027, although banks may choose to implement them earlier. The RBI has sought public feedback on these proposed amendments to its Know Your Customer Directions, 2025.
Banks will need to implement artificial intelligence (AI)-based monitoring systems to detect unusual transfers of Rs 1,000 or more. These systems will flag transactions that seem sudden, inconsistent with the customer's declared profile, or linked to known cyber-fraud networks. The objective of this proposal is to safeguard customers from the inconvenience caused when their bank accounts are frozen due to a single disputed transaction, ensuring that their undisputed funds remain accessible during the verification process.
If a hold is placed on an account, the customer will be granted 20 calendar days to prove the transaction's legitimacy. During this period, the account holder may provide identity proof, explain the purpose and circumstances of the transfer, and submit necessary documents demonstrating the source of funds. Banks must review the customer's response and documentation within 10 calendar days.
If the explanation is deemed satisfactory, the temporary hold must be lifted immediately. However, if the customer fails to respond within the 20-day window or if the evidence does not alleviate the bank's concerns, the case must be forwarded to the local police through the NCRP/CFCFRMS portal. Law-enforcement authorities will then have 30 days to issue a statutory restraint order. Without this order, banks cannot retain the disputed funds indefinitely.
This framework aligns with the Supreme Court's August 4, 2026, directive, which tasked the RBI with developing and disseminating a standard operating procedure for temporary debit holds connected to suspected mule activity and cyber-enabled fraud.
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