RBI governor Malhotra urges banks to collaborate to curb rising digital frauds

MUMBAI: Banks, non-bank financiers, and other entities regulated by the Reserve Bank of India (RBI) should work together to counter the growing threat of digital fraud, governor Sanjay Malhotra said on Friday, calling collaboration critical to protecting customers and maintaining trust in the financial system.

While individual institutions must strengthen their own tools, techniques and processes, Malhotra said collective efforts are essential to build shared analytics and systems that can detect mule accounts and suspicious transactions early and pre-emptively.

According to the RBI’s annual report, the value of digital payment frauds at banks fell to ₹520 crore in FY25, involving 13,516 transactions, compared with ₹1,457 crore and 29,082 transactions in FY24.

Mule accounts, so called because they act as conduits for funds that do not belong to the account holder, typically remain dormant but can suddenly show a spike in low-value, high-volume transactions. The regulator has taken steps to help banks identify such accounts.

Malhotra had said in November that the Mule Hunter tool launched to check digital fraud was showing a strong success rate. MuleHunter.ai, an artificial intelligence (AI)-enabled system developed by the Reserve Bank Innovation Hub to flag mule accounts, is detecting about 20,000 such accounts every month, news agency PTI reported on 20 November.

“For all of us, protecting customers’ interest is not just a priority – it has to become the cornerstone of a sustainable and resilient financial system,” said Malhotra.

He cautioned that while digital channels have improved inclusion and convenience, the absence of adequate guardrails can also enable opaque pricing, weak disclosures and inappropriate recovery practices.

“Our aim should be to ensure that digitalization and innovations are aligned with fair outcomes for consumers,” he said, adding that protecting customers from rising digital frauds has engaged national attention.

Malhotra also said the RBI intends to make supervision more off-site than on-site, increasingly near real-time rather than periodic. “Increasingly, this will also mean using SupTech (supervisory technology) and AI-enabled tools more deeply, while retaining judgment and accountability, firmly with supervisors.”

He added that similar tools could be used by the RBI’s department of regulation to support evidence-based rule-making.

On enforcement actions against banks and other regulated entities, Malhotra said the regulator’s approach is generally not punitive. The intent, he said, is to course-correct—both by signalling concerns to the entities involved and by making others aware of acceptable standards of conduct and regulatory expectations.

The RBI levied smaller penalties on banks in 2025, with the median fine on lenders almost half the level of the past two years, Mint reported on 30 December. While the number of enforcement actions rose—from 26 in 2023 and 30 in 2024 to 38 in 2025—the size of penalties declined. These included fines on public sector, private sector and foreign banks, as well as small finance and payments banks.