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Rs 1.31 crore relief in Rs 23 crore scam: RBI orders banks to compensate digital arrest victim
April 22, 2026
The RBI has ordered five banks to pay Rs 1.31 crore to a victim of a Rs 23 crore digital arrest scam, as the Supreme Court examines wider accountability and systemic lapses in India’s banking system
The Reserve Bank of India has directed five lenders to compensate a victim of a large-scale digital arrest scam, even as proceedings in the Supreme Court of India intensify scrutiny of systemic gaps in the banking ecosystem.
In an order dated February 25, the RBI’s ombudsman in New Delhi asked Axis Bank, City Union Bank, ICICI Bank, IndusInd Bank and Yes Bank to collectively pay Rs 1.31 crore to the complainant, citing lapses in monitoring mule accounts and compliance with KYC norms.
The case stems from a plea filed by 78-year-old retired banker Naresh Malhotra, who has sought full restitution of Rs 22.92 crore, rounded off to Rs 23 crore, allegedly siphoned off through a sophisticated fraud using the now-prevalent “digital arrest” tactic.
According to police filings, the fraud began on August 4, 2025, when Malhotra received a call from a person posing as a Mumbai Police officer. He was falsely accused of links to narcotics trafficking and later contacted by individuals impersonating enforcement officials. Over several weeks, he was coerced into believing he was under investigation and effectively placed under digital arrest, isolating him and preventing outside contact.
Under threat, he transferred funds across multiple bank accounts. The money was routed through a network of mule accounts across the banking system.
While the ombudsman found no deficiency on the part of remitter banks — since transactions were authorised by the victim — it flagged lapses at beneficiary banks where the funds were parked. These included inadequate KYC compliance and weak transaction monitoring.
Axis Bank, City Union Bank, ICICI Bank and IndusInd Bank have been directed to compensate 5 per cent of the funds routed through their systems, while Yes Bank will pay 7.5 per cent due to additional lapses.
Investigators said the fraud involved 21 initial transactions across 16 branches before being split into thousands of transfers. A probe by Delhi Police’s IFSO unit traced the trail to hundreds of mule accounts, with the case later handed to the Central Bureau of Investigation.
Malhotra has so far recovered Rs 1.31 crore under the RBI order and around Rs 60 lakh earlier, but has challenged the ruling, arguing for full restitution.
In an order dated February 25, the RBI’s ombudsman in New Delhi asked Axis Bank, City Union Bank, ICICI Bank, IndusInd Bank and Yes Bank to collectively pay Rs 1.31 crore to the complainant, citing lapses in monitoring mule accounts and compliance with KYC norms.
The case stems from a plea filed by 78-year-old retired banker Naresh Malhotra, who has sought full restitution of Rs 22.92 crore, rounded off to Rs 23 crore, allegedly siphoned off through a sophisticated fraud using the now-prevalent “digital arrest” tactic.
According to police filings, the fraud began on August 4, 2025, when Malhotra received a call from a person posing as a Mumbai Police officer. He was falsely accused of links to narcotics trafficking and later contacted by individuals impersonating enforcement officials. Over several weeks, he was coerced into believing he was under investigation and effectively placed under digital arrest, isolating him and preventing outside contact.
Under threat, he transferred funds across multiple bank accounts. The money was routed through a network of mule accounts across the banking system.
While the ombudsman found no deficiency on the part of remitter banks — since transactions were authorised by the victim — it flagged lapses at beneficiary banks where the funds were parked. These included inadequate KYC compliance and weak transaction monitoring.
Axis Bank, City Union Bank, ICICI Bank and IndusInd Bank have been directed to compensate 5 per cent of the funds routed through their systems, while Yes Bank will pay 7.5 per cent due to additional lapses.
Investigators said the fraud involved 21 initial transactions across 16 branches before being split into thousands of transfers. A probe by Delhi Police’s IFSO unit traced the trail to hundreds of mule accounts, with the case later handed to the Central Bureau of Investigation.
Malhotra has so far recovered Rs 1.31 crore under the RBI order and around Rs 60 lakh earlier, but has challenged the ruling, arguing for full restitution.