The Secretary, Department of Financial Services (DFS), on Thursday, 30 April 2025, instructed banks across India to adopt MuleHunter.AI — a tool developed by the Reserve Bank of India (RBI) — at the earliest, to identify and shut down mule accounts being exploited in digital financial frauds. The directive came during a high-level inter-agency meeting held in New Delhi, chaired by the DFS Secretary.

Key Developments from the High-Level Meeting

The DFS Secretary chaired a meeting with Hyderabad Police Commissioner V. C. Sajjanar and senior officials from the Indian Cyber Crime Coordination Centre (I4C), the Central Bureau of Investigation (CBI), the Reserve Bank of India, the Indian Digital Payments Infrastructure Company, and representatives from multiple banks. The agenda: reviewing the alarming rise in digital financial frauds and the systematic misuse of mule accounts by cybercriminals.

A significant portion of the discussion centred on Operation Octopus, a recent crackdown by Hyderabad Police that exposed critical vulnerabilities in the banking system — including gross negligence in Know Your Customer (KYC) verification at the branch level. The operation revealed how mule accounts, opened in the names of innocent individuals, have become the primary conduit for cyber fraud syndicates operating across the country.

What the Government Has Directed

Beyond the MuleHunter.AI mandate, the DFS Secretary advised State Level Bankers' Committees (SLBCs) to sensitise state police authorities about the preventive steps banks are taking against cyber financial fraud. The meeting also emphasised the need for real-time intelligence sharing between law enforcement agencies and banks, and faster response mechanisms to detect and freeze fraudulent transactions.

Coordinated efforts under Operation Octopus were held up as a model, with officials stressing that such inter-agency collaboration must be institutionalised rather than treated as a one-off exercise.

Hyderabad Police Commissioner's Push for Systemic Reform

Commissioner V. C. Sajjanar confirmed his participation in the New Delhi meeting via a post on X, noting the focus on learnings from Operation Octopus and strengthening coordinated efforts to tackle cyber-enabled financial fraud.

Last week, Sajjanar had written a detailed letter to RBI Governor Sanjay Malhotra, urging the central bank to issue stringent directives to all commercial banks. He recommended that branch-level officials be held accountable for KYC lapses and called for an immediate systemic audit to ensure field-level compliance with KYC guidelines. The Commissioner argued that such reforms are imperative to dismantle organised fraud syndicates operating at scale across India.

Why Mule Accounts Are a Growing Threat

Mule accounts — bank accounts opened in the names of unsuspecting individuals and then handed over to fraudsters — have emerged as the backbone of cyber fraud operations in India. They allow criminals to receive, layer, and transfer stolen funds while shielding the actual perpetrators from direct detection. Operation Octopus surfaced the extent to which weak KYC enforcement at branch level has enabled this ecosystem to flourish.

Notably, this is not the first time regulators have flagged the mule account problem, but the deployment of an AI-driven detection tool like MuleHunter.AI marks a significant technological escalation in the government's response. With inter-agency coordination now formally on the agenda and the RBI's tool being pushed for rapid adoption, the next phase will test whether banks can translate policy directives into on-ground enforcement.