Financial Services secretary flags digital risks, says AI key to tackling mule accounts

Mumbai: The government has expressed serious concerns over the sharp rise in digital frauds, with financial services secretary M Nagaraju flagging the growing menace of mule accounts as a major challenge. Speaking in Mumbai at the Indian Banks' Association's (IBA) 21st Annual Banking Technology Conference, Nagaraju said that despite sustained efforts by banks, the situation remains alarming and calls for deeper deliberations to arrive at workable solutions.

"The government is very concerned about the rising frauds and digital risks, which are leading to innocent people losing their lifelong savings," Nagaraju said. "The menace of mule accounts is growing and, despite all possible efforts by banks, the situation is not very good. Traditional systems have been deployed to tackle these issues, but extensive deliberation is required to find feasible solutions, where the role of AI and GenAI will be very vital."

The central bank has introduced initiatives such as MuleHunter.ai to combat mule accounts used for fraudulent transactions. The AI tool delivers high accuracy and precision with significantly low false-positive rates and is currently deployed across 20 commercial banks.


In FY25, banks reported 13,516 cases of card and internet frauds amounting to ₹520 crore. Most frauds occurred via digital channels such as cards and internet banking. While private sector banks saw the bulk of these digital frauds, public sector banks reported most frauds linked to their loan books.

Nagaraju called for wider adoption of AI and generative AI to build simplified KYC protocols, enable faster resolution of customer grievances, and support micro-borrowing by analysing unconventional data sources.

"To build a robust roadmap for responsible banking, can we think of AI models to develop products, identify clusters that need greater focus, and help us cover the uncovered population?" he said. "Can AI models help build customised and sustainable products for different sections of society, prevent frauds, and also help us achieve inclusive banking?" Nagaraju noted that AI and GenAI remain largely uncharted territory, and the path taken now will shape the future of the financial sector. He cautioned core issues such as hallucinations, explainability, and embedded biases in AI ecosystems are troubling stakeholders globally and could lead to unethical practices.