RBI proposes 60-day holds on suspected mule accounts to combat fraud

The Reserve Bank of India has proposed a mechanism to combat the misuse of bank accounts for illicit financial activities by introducing a 60-day holding period for accounts suspected of being operated as 'mule accounts'—those used to transfer stolen or illicitly obtained funds.

Under the RBI's framework, when a bank identifies a transaction flagged as suspicious, the account holder will be given 20 days to provide an explanation or documentation justifying the transaction. This response window is designed to ensure that legitimate account holders are not unduly penalized while allowing financial institutions time to investigate potential wrongdoing.

Banks have been assigned fixed timelines for action and review at each stage of the process. The proposal aims to standardize procedures across institutions and prevent unnecessary delays in addressing suspected fraudulent activity. The framework balances consumer protection with the banking sector's need to prevent accounts from being exploited as conduits for financial crimes.

The move comes as Indian banks have increasingly grappled with account takeovers and unauthorized fund transfers. By establishing clear protocols and timelines, the RBI seeks to strengthen the system's resilience against fraud while maintaining transparency in the process. The proposal is expected to be implemented following stakeholder feedback and regulatory approval.