The Reserve Bank of India (RBI) issued a draft procedure on September 11, 2026, requiring banks to lift holds on funds suspected to be proceeds of cyber fraud within 60 days unless directed otherwise by police. The draft, open for public comment until October 2, 2026, aims to regulate account freezes related to cyber fraud cases and is set to take effect from April 1, 2027, though banks may implement it earlier, according to medianama.com.
This draft procedure amends the RBI's Know Your Customer (KYC) Directions, 2025, by adding a Standard Operating Procedure (SOP) on suspected money mule accounts, defined as accounts used knowingly or unknowingly to transfer cyber fraud proceeds. The move follows a Supreme Court order dated August 4, 2026, addressing digital arrest scams and the surge in litigation over account freezes, including a Rajasthan High Court judgment disposing of 105 writ petitions on August 20, 2026, where some disputed transactions were as low as Rs 100 or Rs 1,000, yet accounts remained frozen.
The draft excludes holds placed on accounts at the request of police officers, which have been the primary cause of prolonged account freezes this year. The RBI's intervention responds to the increasing number of cyber-fraud-related account freezes reaching courts and aims to balance fraud prevention with customer rights. By setting a 60-day limit for holds, the RBI seeks to reduce undue hardship on account holders while maintaining law enforcement's ability to investigate, reflecting a regulatory effort to streamline cyber fraud management in banking.
Comments on the draft procedure will close on October 2, 2026. If finalized as proposed, the new directions will become mandatory from April 1, 2027, but banks may choose to adopt them earlier. The RBI’s action follows the Supreme Court’s suo motu proceedings on digital arrest scams, underscoring the judiciary’s role in prompting regulatory reform in cyber fraud controls.