IDFC First Bank on Monday, in a call with analysts, said the Rs 590 crore fraud detected at its Chandigarh branch, involving accounts linked to the Haryana government, was an “isolated” incident arising from alleged collusion between certain employees and external parties, with the employees transferring funds to beneficiaries outside the bank. The bank clarified that the personnel involved have been suspended. Additionally, the regulators and auditors have been informed of the matter, police complaints filed, and other law enforcement agencies are being engaged to investigate the matter. The bank has already engaged KPMG to conduct a forensic audit of the matter.
Shares of the lender plunged nearly 18 per cent on the BSE due to this incident.
Additionally, the bank stated that the discrepancy found was Rs 490 crore, but through reconciliation, it found a further discrepancy of Rs 100 crore, taking the total impact to Rs 590 crore. “We have put out this number as we could best assess at this point of time. But we feel that the number is broadly appropriate to the current situation. We do not anticipate this to broadly move from here on to a great extent,” the bank’s management clarified on the analyst call.
Meanwhile, the bank’s senior management said no member of the top leadership was involved in the fraud and asserted that the lender remains well capitalised, with adequate buffers to absorb the impact of the incident.
“This is a specific, isolated incident that occurred at one branch with one client group. This is essentially a case where debit instructions were purportedly received from the client, and our personnel — which clearly indicates fraudulent activity to us — processed the entries and transferred the money from the client’s account to certain parties outside the bank,” said V Vaidyanathan, MD & CEO, IDFC First Bank.
“Cheques were also used. In hindsight, it appears forced, but someone cleared them. Based on the work we have done, this clearly appears to be a case of employee fraud. Our internal findings and details also make it clear that external parties were involved. This is, therefore, a serious matter for us,” he said, adding that an incident of this magnitude had not happened in the last 10 years that they have been running the bank.
Vaidyanathan assured that no one involved in this incident will be spared. “We will spare no one. And we have quickly moved in. We have appointed a forensic auditor for this, KPMG. And we will expect them to move in with great diligence and move very fast. And we will take the full support of the law enforcement of the country,” he said.
Having said that, he assured investors that the bank is now fundamentally in a strong position, with its operating profit having crossed 2 per cent, compared to 0.5 per cent earlier. He said this is expected to rise further to around 3.5 per cent in due course as the bank evolves fully, based on the base rate at which it lends and the margins it earns, which stood at 5.7–5.8 per cent last quarter and are expected to be around 5.8 per cent this quarter.
On the basis of this underlying strength, he said the bank believes the incident will pass. The impact will flow through the profit and loss account as and when it arises, and the bank will absorb it. However, he emphasised that while the financial impact may pass through the P&L, the incident will not pass from the bank’s memory, as it is a very significant event for the institution.
The bank’s management highlighted that deposits of the Haryana government constitute around 0.5 per cent of the bank’s overall deposits of Rs 2.82 trillion. Since the incident, around Rs 200 crore outflow has taken place from the Haryana government’s deposits. Overall, state-government and central government deposits constitute 8–10 per cent of the bank’s deposit base.
“We believe the fraud is an isolated issue with respect to one bank and don’t expect it to be widespread. Having said that, there will be greater scrutiny of government deposits in private sector banks and some deposits could move to PSU banks over the medium term, particularly affecting CASA. Post Covid, CASA ratios have been under pressure across the system, having declined 500–600 bps from the peak levels,” said Suresh Ganapathy, Managing Director and Head of Financial Services Research, Macquarie Capital.
According to Nomura, the amount under reconciliation (Rs 590 crore) constitutes 28 per cent of FY26F profit and 19 basis points (bps) of the CET-1 ratio, which stood at 14.23 per cent as of Dec-25. The exact impact on the bank’s financials will depend on potential recoveries made through liens marked on fraudulent beneficiary accounts maintained with other banks, liabilities of entities involved in the transactions and the legal recovery process.
"While the issue appears localised, it raises concerns around governance and branch-level controls. We await clarity on the quantum of potential loss, recoveries, and provisioning stance. In deposit-linked frauds, banks usually protect depositors and recognize the loss through P&L once the fraud is established, leading to high/often full provisioning, whereas recoveries, if any, are generally back-ended (insurance, asset seizure, third-party liability). Given IDFC First Bank’s retail deposit-led model, reputational perception remains critical, and the stock could remain under pressure until forensic findings and the financial impact are clearly established", Nomura said in a note.
Meanwhile, the Haryana state government has de-empanelled IDFC First Bank and AU Small Finance Bank for government business in the state. “No government funds shall henceforth be parked, deposited, invested, or transacted through these banks,” the government notification, issued on February 18, stated. Under the new norms, administrative secretaries can approve the opening of accounts for government schemes only in nationalised banks operating in the state, while opening accounts in private sector banks will require prior approval.
The state government further highlighted in its notification that its finance department has noticed that certain banks are not adhering to the conditions under which fixed deposits are being made by the departments and corporations.
“We are very sensitive to all government accounts, as much as we are with end customers. So, our intention is not really to litigate this or anything like that. If we have made a mistake, we will own it up straightforwardly and we will do whatever is required to be done. And if there is anything in the grey zone where we feel the counterparty is involved, we will speak with them as conclusively as possible and try to find a meaningful solution.”
The bank over the weekend disclosed that it detected a Rs 590 crore fraud at one of its branches in Chandigarh, pertaining to accounts related to the Haryana state government. The bank has suspended four of its branch employees. The discrepancies came to notice after one of the state government departments sought to close its bank account with IDFC First Bank and transfer the funds to another bank. However, the amount mentioned by the department did not match the balance in the account.
A bank has to set aside capital, in terms of provisioning, once a fraud is detected. The quantum of fraud detected by the bank is more than the Rs 503 crore net profit it reported for the October–December quarter of 2025–26.
Separately, AU Small Finance Bank said that as of February 17, 2026, it had total deposits of Rs 735 crore from the Government of Haryana, which have reduced to Rs 538 crore as of February 21, 2026, across around 200 accounts (around 0.4 per cent of the bank’s overall deposits as of December 31, 2026), following the de-empanelment.
“We, as a bank, reiterate our commitment to strong governance, transparency, and the safeguarding of public funds and will continue to engage with the Government of Haryana for re-empanelment and communicate with all other stakeholders,” the bank said, adding that based on available facts at this stage and a preliminary review, there is no indication of any financial impact or any fraudulent activity involving the bank.
“The bank’s board has been informed and the bank continues its internal review on this matter. To ensure a fair and transparent review, certain employees have been placed off duty,” the bank said.
 "IDFC First calls Chandigarh fraud 'isolated' incident, says impact limited")
