Banks Tighten Scrutiny on Deposit Accounts to Tackle Rising Mule Fraud

Indian banks are facing a fundamental shift in risk management as deposit accounts—traditionally seen as the safest part of banking—have emerged as a key vulnerability. The surge in mule accounts, used by cybercriminals for money laundering and fraud, is forcing banks to overhaul their customer onboarding and monitoring practices; Economic Times reported.

Deposit Accounts Under the Scanner
For decades, deposit mobilisation was viewed as a low-risk function compared to lending. However, with the rapid rise in digital fraud, the balance has tilted. According to State Bank of India chairman C.S. Setty, liability accounts now carry greater operational risk than loan accounts.

“Large amounts of operational risks are coming from liability accounts which need to be taken care of. Today, opening a loan account seems safer than opening a deposit account,” Setty said at a recent banking event in Mumbai.

Mule accounts—bank accounts used by fraudsters to move stolen or illicit funds—lie at the centre of this problem. Fraudsters often impersonate unsuspecting account holders, making detection challenging. In June, the Central Bureau of Investigation (CBI) flagged over 850,000 mule accounts across more than 700 branches nationwide, underscoring the scale of the threat.

Stricter KYC and Monitoring
To combat the menace, banks are tightening due diligence when opening new accounts. Enhanced Know Your Customer (KYC) checks, early transaction surveillance, and real-time monitoring of suspicious patterns have become standard practice.

Sanjay Mudaliar, executive director of Bank of Baroda, noted that while loan products have built-in risk mitigation structures, deposits require far more vigilance today. “The due diligence when opening bank accounts is becoming more stringent as compared to what it was some years ago,” he said.

Competition for customer deposits adds another layer of complexity. With interest rates low and mutual funds attracting investors, banks are under pressure to expand their depositor base—while simultaneously ensuring mule accounts don’t slip through the cracks.

RBI’s MuleHunter.AI Initiative
Recognising the systemic threat, the Reserve Bank of India (RBI) launched MuleHunter.AI in December 2024, a technology-driven initiative to detect and eliminate mule accounts. Banks have been directed to participate actively, integrating the platform with their systems to strengthen fraud prevention.

In parallel, banks are ramping up staff training programs to help frontline employees identify red flags in customer behaviour and documentation. Transaction alerts and early warning systems are also being refined to catch irregularities before they escalate.

The Road Ahead
As fraudsters adopt sophisticated digital tactics, deposit accounts are no longer the “safe zone” of banking operations. The battle against mule accounts will require a delicate balance—ensuring seamless customer onboarding to maintain competitiveness while deploying stringent checks to safeguard trust in the banking system.

In this new environment, one thing is clear: deposit accounts are now at the heart of India’s banking risk strategy.