RBI orders bank compensation

The Reserve Bank of India has ordered five banks to compensate a Delhi victim after a ₹22.92 crore “digital arrest” fraud exposed failures in how mule accounts were monitored. (indianexpress.com) The RBI ombudsman’s February 25 order told Axis Bank, City Union Bank, ICICI Bank, IndusInd Bank and Yes Bank to collectively pay ₹1.31 crore to 78-year-old Naresh Malhotra, a retired banker. The money was routed through accounts at those banks after the fraud between August and September 2025. (indianexpress.com) The order found no service deficiency by the “remitter” banks because Malhotra himself visited branches and initiated the transfers while under the scammers’ control. It did find deficiencies at the five “beneficiary” banks in compliance with know-your-customer and anti-money-laundering rules and in transaction monitoring. (indianexpress.com; rbi.org.in) A mule account is a bank account used to receive and move stolen money for criminals. RBI’s KYC direction says regulated entities must identify customers, carry out due diligence and monitor transactions under India’s anti-money-laundering framework. (rbi.org.in) The case moved through the Reserve Bank’s Integrated Ombudsman Scheme, which gives customers a cost-free route to complain about “deficiency in service” by banks and other RBI-regulated firms if the firm does not resolve the issue within 30 days. The scheme has been in force since November 12, 2021. (rbi.org.in) “Digital arrest” is the name used in India for scams in which callers pretend to be police or federal investigators and pressure targets to transfer money. RBI’s own consumer warning says there is “nothing like digital arrest” and tells people not to share financial information or pay. (rbi.org.in) The order lands as Malhotra pushes for more than partial relief. He told The Indian Express he has already received the ₹1.31 crore and has appealed to RBI for the full amount with interest and damages. (indianexpress.com) The fraud case has also widened beyond the ombudsman process. The Indian Express reported that the matter was transferred to the Central Bureau of Investigation toward the end of March 2026, after Malhotra also filed a criminal writ petition in the Supreme Court. (indianexpress.com) For banks, the ruling turns a fraud complaint into a controls case: not whether the customer clicked “send,” but whether suspicious accounts should have been opened, flagged or frozen earlier. Malhotra’s appeal will test whether RBI’s partial compensation order is the end of the matter or the start of a broader liability fight. (indianexpress.com; rbi.org.in)