The Reserve Bank of India has unveiled draft amendments to streamline account freezes linked to suspected fraud, responding to a Supreme Court order to standardise responses to money-mule activity and cybercrime, with public comment sought ahead of 2027 implementation.
The Reserve Bank of India has proposed a tighter, more uniform framework for banks to freeze or place temporary holds on accounts and funds linked to suspected fraud, as the central bank responds to a Supreme Court order on money-mule activity and cyber-enabled crime.
According to Law.asia, the draft RBI (Know Your Customer) Amendment Directions, 2026 would give banks a clearer standard operating procedure for identifying suspicious accounts, imposing a temporary debit hold and then lifting that restriction once the authorities have completed their review. The proposal is intended to reduce uncertainty for lenders while also limiting disruption for legitimate customers whose accounts may be caught up in fraud investigations.
The draft rules would apply across a wide range of institutions, including commercial banks, small finance banks, payments banks, regional rural banks, local area banks and urban co-operative banks. Under the proposed framework, banks would be required to file a suspicious transaction report when they believe an account has been opened or used by a money mule, a person who moves illicit funds on behalf of fraudsters, often without fully understanding the criminal activity involved.
The move follows a Supreme Court directive issued on August 4, 2026, which asked the RBI to establish a standard procedure for banks dealing with accounts linked to money-mule activity and to introduce safeguards such as delayed transaction controls in electronic banking. IPPC Group and IRisk both reported that the court wanted a uniform approach so that banks could respond more quickly and consistently to cyber fraud without leaving customers exposed to arbitrary holds or uneven treatment.
The draft amendments would sit alongside the Prevention of Money Laundering Act, the RBI’s existing KYC framework and instructions from the finance and home ministries. Law.asia said the central bank has opened the proposals for public comment and is aiming for implementation on April 1, 2027, or earlier. Separately, a broader set of September 2026 KYC changes reported by Legality Simplified and Taxmann shows the RBI is also refining customer verification rules in other areas, including facilities for overseas investors and updated document procedures for non-resident clients, suggesting a wider push to modernise compliance and streamline account management.
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