Mule Accounts Force Banks Back To Branches
By Manu Shrivastava
India’s banking ecosystem is learning, once again, that the promise of a digital utopia often runs parallel to the perils of an increasingly inventive underworld. The country’s biggest lenders have quietly rolled back their once-celebrated fully online account opening systems, pulling citizens back into the world of branch counters, doorstep verifications and human checks.
It is a sudden retreat for institutions that spent the better part of a decade turning paperless onboarding into a badge of technological pride. Over the past few weeks, ICICI Bank, HDFC Bank, the State Bank of India, Bank of India and Bank of Baroda have all stepped back, abandoning frictionless, app-based sign-ups in favour of layered and supervised verification that reconnects banking to the physical world it was trying hard to leave behind.
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| Image for representational purpose only |
The decision follows a surge in the proliferation of mule accounts, an ugly phrase that has now become emblematic of India’s new banking crisis. These accounts, often opened with real documents but false intent, have become conduits for billions of rupees in laundered cybercrime proceeds. The numbers tell their own unsettling story. Banking fraud losses have tripled to more than thirty six thousand crore rupees in the financial year twenty twenty four to twenty twenty five even though the number of fraud cases has fallen.
The Central Bureau of Investigation has mapped nearly eight and a half lakh mule accounts spread across hundreds of branches. A nationwide suspect registry has already blocked over eight thousand crore rupees worth of dubious flows, but that only hints at the true scale of the ecosystem.
Investigations on the ground reveal a churn far deeper than anyone in the sector had anticipated. Police in Gujarat stumbled upon a ring of six individuals linked to over two hundred and seventy accounts that together facilitated more than eight hundred crore rupees through over fifteen hundred cyber frauds.
In Rourkela, officers found themselves arresting bank employees for creating hundreds of accounts by forging documents and routinely bypassing KYC protocols. Such incidents have forced institutions that once prided themselves on digital velocity to concede that rapid, remote onboarding has opened the gates to sophisticated misuse that their systems were never fully equipped to counter.
Behind the scenes, the regulator has tightened its scrutiny and made it clear that the era of unchecked digital accelerations has ended. The Reserve Bank of India has imposed penalties on banks found with questionable online KYC practices and has pushed lenders to re-examine the very backbone of their onboarding strategies.
Deposit accounts, once assumed to be routine and benign, have now been termed riskier than loan books by senior bank leadership. Branches across cities have begun restricting new account openings to local residents and directing others to return to their home branches, a move that has already sparked frustration among small businesses, daily wage earners and gig-economy workers who rely on fast, uncomplicated banking access.
The shift to assisted digital models at institutions like ICICI and HDFC is being presented as a refinement rather than a rollback, yet industry observers view it as a clear admission that the digital push sprinted ahead of its safeguards. The language surrounding these changes has grown gentler, with assurances of improved customer guidance and stronger security, but the subtext is unmistakable: the banks are being compelled to slow down.
In attempting to outpace one another in digital innovation, they opened doors that criminal networks used to embed themselves, exploiting every loophole in remote verification. The recalibration is now being justified as a temporary slowdown that will allow technology to evolve, particularly artificial intelligence-driven fraud detection, behavioural analytics and more robust video KYC standards.
For millions of users habituated to instant account openings and near-immediate access to financial services, this moment feels like a technological whiplash. India has cultivated more than half a billion digital banking users, many of whom have never entered a branch except to update a passbook or apply for a remittance.
The sudden dependence on document checks, home visits and physical identification feels like a step back into a world they believed the country had decisively surpassed. The inconvenience is even more acutely felt by those in the unorganised sector who depend on rapid onboarding to secure wages, activate payouts or access small business cash flows.
The mule economy itself feeds on a combination of digital literacy gaps and economic desperation. Young, unemployed individuals are lured with small payments in exchange for handing over their documents or opening accounts on others’ behalf. What appears at first to be easy money soon spirals into criminal liability as these accounts are used to channel fraud proceeds spread across multiple states.
Whispers from cybercrime units suggest that dark web tutorials and widespread phishing campaigns have professionalised this parallel industry, enabling fraudsters to generate layers of accounts that camouflage the source and destination of illegal funds with extraordinary speed.
Banks are now considering a raft of upgrades from biometric layering to real-time document authenticity checks, from shared national fraud databases to collaborative intelligence systems that cut across institutions rather than functioning in silos. These are promising directions, but none are ready to replace the certainty that comes with an old-fashioned in-person verification. For now, physical checks offer a buffer of time and scrutiny that algorithms are still learning to match.
In the larger landscape, the retreat from fully digital onboarding is less about failure and more about correction. India has embraced digital finance with unmatched enthusiasm, setting global standards through innovations like UPI, Aadhaar-linked authentication and paperless lending. But as the ecosystem widens, so do the loopholes. The mule crisis is a vivid illustration of technology outpacing trust infrastructure. The banks’ recalibration serves as a reminder that digital transformation is not a straight line but a series of course adjustments that balance ambition with prudence.
As financial institutions circle back to the basics, the underlying message is quietly shaping the next phase of India’s digital banking narrative. The nation’s march toward cashless, branchless efficiency continues, but now with a renewed awareness that innovation must be built atop stronger guardrails. For all the speed and brilliance of fintech advancement, the humble branch visit has returned as a stabilising force, reclaiming its relevance in an era that once seemed determined to leave it behind.
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