Banks step up control to check ‘mule’ fraud

Commercial banks in India have stepped up their control mechanism in taking on new current- and savings accounts customers while enhancing surveillance on the existing ones.

This is in the wake of an increase in the number of “mule accounts” in the past six-nine months, bankers said.

This is the first time bankers are facing frauds of a bigger scale on deposit accounts. Typically, bank frauds are committed on loans like those on the credit card.

According to the RBI data, there were 606 deposit-related frauds in the first half of 2023-24 as against 551 in 2022-23.

A mule operates someone else’s account to transfer illegal money.

80-85 per cent of the accounts were sole-proprietorship current accounts, and these accounts were mostly in rural and semi-urban areas.

Following the alerts, most of the banks started to look at the data from 1997 onwards. It was found most were opened in Fy2024.

While analysing the data, a particular pattern of transaction was found. Most of these transaction were routed through the UPI (Unified Payments Interface) handle. And the credits were in multiples of 100.

The earlier experience of the banks was that most of the frauds happened with large amounts. So there were large-transaction alerts. But this logic did not apply to these accounts because it was getting ₹1,500 or ₹2,000 UPI credits to these account. The consolidated sum over the period of the day becomes larger, and most of these accounts were showing behaviour called zero washout. It means whatever credit comes into the system during the day gets withdrawn in the evening.

Bankers say the issue has been tackled to a great extent but there is still some distance to be covered.