MUMBAI: Banks, non-bank financiers, and other financial sector entities should work more closely to counter the growing threat of digital frauds, Reserve Bank governor Sanjay Malhotra has said, calling for more collaboration between them to protect customers and maintaining their 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.
Asking banks and other regulated entities to continue improving their tools, techniques and processes in preventing and tackling digital frauds, Malhotra urged for more collaborative efforts in building analytics and tools to detect mule accounts and suspicious transactions timely and pre-emptively.
“Protecting customers’ interest is not just a priority–it has become the cornerstone of a sustainable and resilient financial system. Our aim should be to ensure that digitalisation and innovations are aligned with fair outcomes for consumers,” he told the third annual global conference of the college of supervisors in Mumbai on Friday.
Further the governor has called for shared analytics and other tech tools to detect mule accounts, as the central bank pushes for near real-time supervision and lighter penalties, as protecting customers from rising digital frauds has engaged national attention.
“Digitalisation of finance is widening access, enhancing efficiency, improving convenience, and enabling far more tailored financial services. At the same time, it is reshaping the nature and scale of risks. It is also accelerating the transmission of disruptions and risks underscoring the need for agility in regulatory and supervisory response,” he said, adding all these calls for systemic resilience as a collaborative efforts, supervisory action and enforcement as corrective measures, effective use of data for prevention of frauds and customer-centricity and capacity building for better days ahead.
“Essentially, the objectives and purposes of the regulator and the regulated are the same i.e. to ensure the long term growth, advancement, stability, integrity, and credibility of the financial system. We are partners in the nation’s development and therefore, we have to work together to strike the right balance between growth and systemic stability on the one hand and between responsible innovation and consumer protection on the other hand,” the governor said calling upon the regulated entities to work more closely.
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 supervisory technology and AI-enabled tools more deeply, while retaining judgment and accountability, firmly with supervisors.”
According to the RBI’s annual report, the value of digital payment frauds at banks fell to Rs 520 crore in FY25, involving 13,516 transactions, compared to Rs 1,457 crore across 29,082 transactions in FY24.
Mule accounts, so called because they act as conduits for funds that do not belong to the accountholder, 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-enabled system developed by the Reserve Bank Innovation Hub to flag mule accounts, is detecting about 20,000 such accounts every month.
“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, cautioning 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.
He further said 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.