RBI Proposes 60-Day Cap on Debit Holds for Suspected Money Mule Accounts

In a bid to streamline actions against digital financial fraud while curbing arbitrary account blocks, the Reserve Bank of India (RBI) has proposed a standardized, time-bound operating procedure for banks handling suspected money-mule accounts. Under the draft Reserve Bank of India (Know Your Customer) Amendment Directions, 2026, the central bank has proposed capping temporary debit holds at a maximum of 60 days, unless directed otherwise by law enforcement agencies or a competent court.

The draft rules follow an August 4 directive from the Supreme Court of India, which instructed the banking regulator to establish a uniform standard operating procedure (SOP) to combat mule accounts while ensuring rapid grievance redressal and fair treatment for genuine account holders.

Targeted Freezes Over Blanket Account Blocks

Under current practices, law enforcement agencies and automated banking filters frequently freeze entire bank accounts upon detecting suspicious inflows, leaving legitimate users, small businesses, and investors cut off from their own capital for months without clear avenues for appeal.

The RBI’s draft framework mandates that banks prioritize transaction-level holds rather than full account freezes. Account-level debit holds are to be used only as an exceptional measure and a last resort.

Key Highlights of the Proposed SOP:

• Threshold for Flagging: Transactions of ₹1,000 or more that are flagged by banks' internal transaction-monitoring systems—including artificial intelligence (AI) and machine learning (ML) tools—can trigger a temporary debit hold if they deviate sharply from a customer’s declared profile.
• Immediate Customer Notification: Banks must immediately inform the account holder through digital channels or physical correspondence, providing specific reasons for the debit hold, procedural guidelines for removal, and the nodal officer's contact details.
• 20-Day Explanation Window: Affected account holders will be given 20 days to provide explanations and documentation verifying the legitimacy of the flagged transactions.
• Time-Bound Police Referrals: If a bank refers the case to a law enforcement agency and receives no further instructions or formal restraint orders within 30 days of the referral, the bank must lift the debit hold on the 31st day.
• 60-Day Absolute Ceiling: The overall duration of any temporary debit hold cannot exceed 60 days from the date of imposition in the absence of explicit statutory or judicial orders.

Balancing Fraud Containment and Consumer Protection

Money-mule networks—where fraudsters route proceeds from phishing, investment scams, and cyber fraud through third-party accounts—have grown rapidly alongside the expansion of India's digital payment ecosystem. Scammers often lure students, low-income earners, or unsuspecting retail users into sharing banking credentials or renting out accounts.

By establishing defined escalation timelines and holding banks accountable to a 60-day outer limit, the proposed norms provide much-needed procedural clarity. For everyday depositors and retail market participants, the guidelines offer protection against sudden liquidity freezes caused by automated false positives or isolated disputed transfers.

Tags: RBI Supreme Court of India Banking Cyber Fraud Digital Payments Fintech