RBI proposes freezing only disputed amount, not entire bank account
RBI's new draft framework lets banks freeze only the suspect amount in fraud cases, not the whole account, from April 2027.
Bank customers are set to get major relief in cases involving cyber fraud and suspicious transactions. The Reserve Bank of India has proposed a new framework under which banks will no longer be able to freeze an entire account if a suspicious transaction is detected. Banks will only have to place a temporary hold on the amount that is disputed or suspected of cyber fraud.
Under the proposed rule, if an unusual transaction of 1,000 rupees or more in an account appears linked to a "mule account" or cyber fraud, banks will be able to place a temporary hold only on that amount. The rest of the account's transactions will continue as before. The Reserve Bank has released these proposed rules for public feedback. The new guidelines are proposed to come into effect from April 1, 2027.
Under the new system, the bank will give the customer 20 calendar days to prove the legal validity of the suspicious transaction. The customer will be able to establish the legitimacy of the amount by providing documents showing their identity, the purpose of the transaction and the source of the funds. After that, the bank will get 10 calendar days to examine the customer's response and the documents provided.
If the customer does not respond within 20 days, or if the response does not clear the suspicion of cyber fraud, the bank will hand the matter over to the police concerned. In such a case, the bank will not be able to keep the amount frozen indefinitely on its own. Once the matter goes to the police, full responsibility will rest with the law enforcement agency. The police will have to issue an official legal restraint order within 30 days of receiving the case.
RBI's proposed framework moves away from freezing the entire account in suspected mule account cases, adopting instead a targeted approach that acts only on the suspicious or disputed amount. Under the new framework, banks will have to use an AI-based transaction monitoring system. This system will identify transactions that are sudden or unusual compared to the customer's normal profile. In addition, transactions that are much larger than the customer's stated income or profile, or linked to previously identified cyber fraud networks, will also be closely monitored.
