Hyderabad Police Urge RBI Overhaul as Cybercrime Losses Near Rs 400 Crore
Following a sweeping crackdown on digital fraud, law enforcement officials in Hyderabad are demanding urgent structural reforms from the Reserve Bank of India (RBI) to close systemic gaps in the banking sector. Police investigations have revealed that "mule" accounts—often opened with lax verification—are the primary vehicle for siphoning funds, resulting in annual losses approaching Rs 400 crore in the city alone.
Background and Context
The pressure for reform comes after the Department of Financial Services (DFS) chaired a high-level meeting to address a surge in digital financial frauds. According to data reviewed by investigators, Hyderabad has recorded over 9,437 cyber fraud cases in recent years, with losses mounting as fraudsters refine their methods. The Indian Cyber Crime Coordination Centre (I4C) and the Central Bureau of Investigation (CBI) are now coordinating with state police to target the infrastructure enabling these crimes.
Nationally, the scale is staggering: more than Rs 1.25 lakh crore was lost to cybercrime between 2021 and 2024, with over 175,000 complaints filed monthly. Despite these volumes, financial recovery remains minimal, highlighting a critical disconnect between law enforcement actions and banking safeguards.
Key Figures and Entities
Hyderabad Police Commissioner V C Sajjanar has been a vocal critic of the current banking oversight framework. In the past four months, he has written five letters to RBI Governor Sanjay Malhotra, urging immediate intervention to curb the proliferation of mule accounts. According to correspondence seen by reporters, Sajjanar argued that the sustained operation of these accounts is "impossible without active or passive complicity within the banking ecosystem."
The recent meeting, attended by top officials from the DFS, RBI, and major banks, marks a shift toward enforcement. Authorities have directed banks to adopt the RBI’s MuleHunter.AI tool to better detect fraudulent accounts, moving beyond previous advisories that proved ineffective at the branch level.
Legal and Financial Mechanisms
Investigations under “Operation Octopus” have exposed how quickly stolen assets are dissipated. In one instance cited by officials, money from a single mule account was routed through nearly 4,500 separate accounts. This “layering” process allows fraudsters to obfuscate the money trail within hours, rendering recovery nearly impossible once the initial transfer is completed.
A primary failure point identified by police is the Know Your Customer (KYC) process. Investigators allege that branch staff often fail to verify documents rigorously, allowing accounts to be opened using false credentials. To combat this, police have proposed geo-tagged verification and stricter authentication protocols. Furthermore, they have highlighted a flawed incentive structure where bank branches are measured on account volumes rather than account quality, inadvertently encouraging the opening of risky accounts.
International Implications and Policy Response
The crackdown in Hyderabad highlights a broader policy challenge: the need for real-time intelligence sharing between banks and law enforcement. The police have proposed "golden hour" protocols, including lien marking within an hour of a complaint and account freezing within a few hours, to improve the chances of recovery.
Long-term recommendations include the creation of a centralised database of mule accounts, linked to mobile numbers and devices, to track repeat offenders across different financial institutions. The DFS has also instructed state-level bankers’ committees to work closely with state police to enhance public awareness. As the next phase of Operation Octopus begins, authorities anticipate over 100 arrests within the banking system, signaling a tougher stance on institutional negligence.
Sources
This report draws on Economic Times reporting, public statements by the Reserve Bank of India, and official data from the Hyderabad Police regarding Operation Octopus and cybercrime statistics from 2024 to 2026.
