Mule accounts disrupt banks’ deposit chase

Not too long ago, Indian banks were scrambling to shore up deposits to fuel credit growth.

- Anshika Kayastha& Shayan Ghosh

Now, they are more willing to advance loans despite the inherent risk of default than competing for depositors. The reason: digital fraud and fund diversion.

Bankers say rising cases of dormant accounts being misused as mule accounts are keeping lenders on their toes. Mule accounts act as conduits for sending and receiving funds that do not belong to the account holder. They usually remain dormant but can see a sudden spurt in low-value, high-volume transactions.

Over 700 bank branches across India have around 850,000 mule accounts, according to the Central Bureau of Investigation (CBI). The agency is probing such accounts being used for cyber fraud.

Last year, banks faced one of the worst deposit crises in two decades as low returns pushed people to other investment avenues like mutual funds. Credit growth was consistently outpacing deposit growth, leading to worries of asset-liability mismatch. The two rates finally converged earlier this year, primarily on account of a dip in credit growth. Indian bank deposits grew 10.2% year-on-year at the end of August, while nonfood credit rose 9.9%, according to data from the Reserve Bank of India (RBI).