Sipu Jha
The scale of the suspected fraud is larger than the bank’s third-quarter net profit of Rs 503 crore. (AI image)
IDFC First Bank fraud: A Rs 590 crore fraud, at IDFC First Bank’s Chandigarh branch, has led to a massive erosion in investor wealth of over Rs 14,000 crore. The fraud has come to light after entities linked to the Haryana state government reported mismatches between actual bank balances and the amounts reflected in account records. The result: On Monday, the shares of IDFC First Bank crashed by 20%, hitting lower circuit after it emerged that the alleged misappropriation is more than the bank’s entire quarterly earnings!
What is the IDFC First Bank fraud case?
- IDFC First Bank has said that staff at its Chandigarh branch executed unauthorized transactions in accounts associated with the Haryana state government, resulting in a deposit mismatch of about Rs 590 crore.
- The scale of the suspected fraud is larger than the bank’s third-quarter net profit of Rs 503 crore.
- An initial internal probe revealed that the irregularities were limited to a particular set of Haryana government-related accounts maintained at the bank’s Chandigarh branch.
- Four branch officials suspected of involvement have been placed under suspension. The bank has lodged a police complaint, notified its statutory auditors, and engaged KPMG to carry out an independent forensic investigation.
- IDFC First Bank Managing Director and CEO V. Vaidyanathan sought to limit the fallout, asserting that the lapse was restricted in scope and stemmed from internal collusion rather than any broader structural weakness.
- “The bank has necessary controls in place, including maker, checker and authoriser for clearing cheques or debit instructions from the department,” Vaidyanathan told ET. “We have been in operation for over 10 years and have rolled out over 1,000 branches and have had no such incident before.” He further said: “Prima facie third-party entities are involved in this compromise… The issue is specific to one branch and one client group and is thus an isolated instance. There is no system-level issue.”
- A meeting of the Board’s Special Committee for Monitoring Fraud Cases was convened on February 20, followed by sessions of the full Audit Committee and the Board on February 21.
- In a regulatory filing submitted in the early hours, the bank said it had informed the banking regulator about the matter and lodged a police complaint.
- In addition, the bank has issued recall notices to beneficiary banks, requesting them to lien-mark funds held in accounts considered suspicious. This step may help reduce the eventual financial impact.
- Beyond the immediate financial implications, the episode has led to reputational fallout. The Haryana government has removed IDFC First Bank from its empanelled list, along with AU Small Finance Bank, and instructed state departments to close their accounts with both institutions.
What is the outlook for IDFC Bank stock?
UBS estimates the amount involved is nearly 22% of IDFC First Bank’s projected FY26 profit after tax, while noting that the effect on capital would likely be contained at around 1%of net worth. Morgan Stanley, meanwhile, assessed the potential impact on FY26 profit before tax at roughly 20 percent.Investec retained its Buy recommendation on the stock but lowered its target price to Rs 92 from Rs 105. It noted that the ultimate financial effect would hinge on the outcome of investigations, the extent of recoveries and the verification of claims.Nomura analyst Ankit Bihani said the eventual impact on the bank’s financial performance would depend on how much can be recovered through liens placed on beneficiary accounts held with other banks, the liabilities of the parties involved and the progress of legal recovery proceedings.He also flagged issues related to governance standards and branch-level oversight. Given IDFC First Bank’s retail deposit-driven business model, he said maintaining reputation is crucial. The stock may continue to face pressure until the audit is completed.Jefferies said the lender must tighten its operational safeguards and provide assurance that the irregularities are confined to the identified accounts and have not affected other customers.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)
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