- HDFC Bank slowed new account openings to combat increasing mule account fraud risks
- The bank enhanced customer screening using algorithms to improve account quality
- Customer acquisition pace dropped during FY24-FY26 due to stricter onboarding standards
Opening a bank account has usually been one of the easiest parts of dealing with a bank. Unlike a loan, there is no credit score to clear or income threshold to meet for most savings accounts.
Yet HDFC Bank chose to slow something most banks try to accelerate.
The lender said it deliberately slowed one part of its business over the past few years. The reason was not weak demand for bank accounts, slower economic growth or higher interest rates. Instead, it was responding to a problem that had become harder to ignore across the banking system.
The Shift
HDFC Bank said it tightened the way it onboarded new customers even though customer additions are central to growing deposits.
Banks rely on deposits collected through savings and current accounts to fund loans. A higher deposit base can reduce dependence on wholesale borrowings and help banks support future lending.
"We did see a fair amount of fraudsters using accounts as mules," Managing Director and Chief Executive Officer Sashidhar Jagdishan said during the earnings call on Saturday. The bank, he added, slowed new customer acquisition while it put in place systems aimed at improving the quality of new accounts.
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The Reason
A mule account is a bank account used to receive or move money obtained through fraud. The account may be opened using fake documents or by people who knowingly or unknowingly allow fraudsters to use their accounts.
Such accounts have become a growing concern as digital payments have expanded and online scams have become more sophisticated.
HDFC Bank said it used algorithms and rule-based systems to improve customer screening before opening new accounts.
"We were gearing ourselves to the new realm of better quality acquisitions," Jagdishan said, referring to the period during which customer additions slowed.
Behind The Screens
The bank said those changes affected the pace of customer acquisition during FY24, FY25 and FY26.
Jagdishan said the focus was on ensuring that new accounts met the bank's internal standards rather than pursuing faster growth.
"As we now move forward, one should see a step-up... in the numbers moving up, at the quality and the kind of diligence that one would necessarily need in this kind of a digital environment," he said.
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Quality Over Speed
The bank said it is now preparing to increase customer acquisition after completing those changes.
"I think we are now ready to press the pedal," Jagdishan said while discussing customer additions.
The lender said it has more than 100 million customer relationships and wants to increase that base while maintaining the screening processes introduced over the past few years.
Why Deposits Matter
Savings and current account deposits, commonly referred to as CASA deposits in banking, are among the lowest-cost sources of funding for lenders. Banks use those deposits to extend loans to consumers and businesses.
Another measure watched by investors is the credit-deposit ratio, which compares the amount a bank has lent with the deposits it has collected. A higher ratio indicates a larger share of deposits has been deployed as loans, while a lower ratio suggests more deposits remain available to support future lending.
Alongside its comments on customer acquisition, HDFC Bank said household deposit growth across the banking system has remained relatively weak in recent years, prompting the lender to focus on adding more customers instead of expecting existing account balances to grow significantly.
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What's Next
Jagdishan said the bank expects customer additions to improve after completing the changes to its onboarding process.
"It was a matter of correction to ensure that we put in a guardrail, not to bring in unwanted accounts," he said. "I think we are reasonably confident that we should reach reasonably healthy numbers in terms of annual momentum... at the quality that one would necessarily need in this kind of a digital environment."
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