RBI Orders Banks to Compensate Fraud Victim

Summary of Key Information from the Digital Arrest Fraud Case

Overview

• Incident: Naresh Malhotra, a 78-year-old retired banker, fell victim to a digital arrest scam, losing ₹22.92 crore during Aug-Sep 2025.
• Judicial Actions: The case is currently under investigation by the CBI and Malhotra has filed a criminal writ petition in the Supreme Court.

Reserve Bank of India's (RBI) Involvement

• Ombudsman Decision: As per the RBI’s Integrated Ombudsman Scheme, five banks (Axis Bank, City Union Bank, ICICI Bank, IndusInd Bank, Yes Bank) were directed to compensate Malhotra with a total of ₹1.31 crore, reflecting 5%-7.5% of the total funds involved.
• KYC/AML Deficiencies: The RBI found deficiencies in the beneficiary banks regarding compliance with KYC (Know Your Customer) and AML (Anti-Money Laundering) guidelines, impacting the monitoring of mule accounts.

Financial Breakdown

• Compensation:
  • Axis Bank, City Union Bank, ICICI Bank, IndusInd Bank: 5% of the amount transferred.
  • Yes Bank: 7.5% due to additional lapses.
• Refunds: So far, Malhotra has received ₹1.31 crore and an additional ₹60 lakh, with ₹2.7 crore of his funds frozen in ongoing investigations.

Systemic Issues and Compliance

• Malhotra argues there was a systemic failure within the banking system due to inadequate compliance and monitoring of transactions, asserting that banks should be held 100% liable for failing to prevent fraud.

Investigation Details

• The Delhi Police identified 811 mule accounts linked to Malhotra's funds spread across roughly 47 banks through approximately 4,236 transactions.
• The layered transfers occurred quickly, complicating human intervention in halting the fraudulent activity.

Key Legal References

• Supreme Court Directions: The RBI’s investigation was prompted by Supreme Court guidance, highlighting the judicial system's engagement in addressing cyber fraud and protection of victims.

Conclusion

Malhotra continues to seek full restitution of the total amount defrauded including interest and damages, emphasizing the need for banks to adhere strictly to compliance guidelines to prevent such incidents in the future.