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Banks to Freeze Only Disputes, Not Accounts
14 Sep
Summary
- Banks will freeze only disputed amounts, not entire accounts.
- AI systems will monitor transfers of Rs 1,000 or more.
- Customers get 20 days to prove transaction legitimacy.
The Reserve Bank of India (RBI) is proposing a new framework to reform how banks manage suspicious financial transactions, aiming to protect customers from cyber fraud and money mule activities. This updated approach, slated for implementation by April 1, 2027, will move away from freezing entire bank accounts.
Instead, banks will focus on temporarily freezing only the disputed transaction amounts, specifically flagging unusual transfers of one thousand rupees or more. This change follows a Supreme Court order from August 4, 2026, directing the RBI to establish Standard Operating Procedures (SOPs).
AI-powered transaction monitoring systems will be crucial in identifying potentially fraudulent transfers that are disproportionate to a customer's profile or linked to known fraud networks. Customers will be granted a 20-day period to submit documents and explanations to prove the legitimacy of these transactions.
Following the customer's submission, banks will have 10 calendar days to assess the provided information. If the explanation is satisfactory, the hold on funds will be lifted immediately. Failure to respond within the 20-day window or an unsatisfactory explanation will lead to the bank referring the case to law enforcement.
Law enforcement agencies will then have 30 days from the referral date to issue a formal statutory restraint order. This new procedure ensures that funds are not held indefinitely and places a clear timeline for both customer response and regulatory action.
