IDFC First Bank to pay Haryana govt ₹590 cr soon after branch fraud case

RBI Gov says issue not systemic; bank term it an isolated incident

IDFC First Bank on Monday informed the Haryana government that it would pay the unreconciled amount of ₹590 crore as soon as possible, following a meeting between the bank’s top management and senior state bureaucrats, sources told

Business Standard. 

On Sunday, the private-sector lender reported a fraud of ₹590 crore at one of its Chandigarh branches involving a state government account. The issue came to light after a government department sought to close its account with the bank and transfer the funds to another lender. However, the amount mentioned by the department did not match the balance in the account. The bank has now assured the state that it will pay the difference, likely on Tuesday.  

 

During an analyst call on Monday morning, the management said the bank was as sensitive to government accounts as it was to end customers and would own it up, including making the payment.

 

The bank termed the fraud an isolated incident. Reserve Bank of India Governor Sanjay Malhotra said there was no systemic issue.

 

“As a policy, we do not comment on any individual bank or regulated entity. We are watching the development. There is no systemic kind of an issue over here,” Malhotra said at a press conference after the central bank’s board meeting in New Delhi.

 

Shares of IDFC First Bank fell nearly 20 per cent intraday but pared losses to close at ₹70.04, down 16 per cent — their steepest decline since the Covid period — wiping out more than ₹11,000 crore in market capitalisation.

 

During the analyst call, the bank said it would make explicit customer confirmation mandatory for high-value branch transactions above a predefined threshold, with verification through a digital channel. This will be in addition to the checks and balances the bank has in place for confirmation of high-value transactions.

 

The management said Haryana government deposits constitute around 0.5 per cent of the bank’s total deposits of ₹2.82 trillion. Since the incident, around ₹200 crore has flowed out from these Haryana government’s deposits. Overall, state and central government balances make up 8-10 per cent of the bank’s deposit base.

 

The bank said it would deploy artificial intelligence to carry out initial cheque-signature verification, after which signatures would be double-checked by a human, as opposed to the current system.

 

The management said this was an “isolated” incident arising from alleged collusion between certain employees and external parties, with funds transferred to beneficiaries outside the bank. The bank clarified that the employees involved had been suspended. Regulators and auditors have been informed of the matter and police complaints filed, and other law enforcement agencies are investigating the matter.

 

The bank has engaged KPMG to conduct a forensic audit of the matter, which is expected to submit its report in the next 4-5 weeks.

 

Managing Director and Chief Executive Officer V Vaidyanathan said the bank’s existing controls were strong but failed in this instance due to collusion. The discrepancy was initially estimated at ₹490 crore but later revised to ₹590 crore after further reconciliation. He added that the bank does not expect the figure to change materially.

 

Managing Director and Chief Executive Officer V Vaidyanathan said: “For transactions exceeding a predefined threshold, we will take mandatory confirmation from the customer. This confirmation will be captured through a verified digital channel within a stipulated time window.” He highlighted, during the analyst call, that the bank had strong controls in place, but it failed in this case because of collusion between certain employees and external parties.

 

The bank said that initially the discrepancy found was of ₹490 crore, but through reconciliation, it found further discrepancy of ₹100 crore, so the total impact came to ₹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 management clarified.

 

“We will spare no one. And we have quickly moved in. We will take the full support of the law enforcement of the country,” Vaidyanathan said, adding that the money has moved to many other banks in the system, and those banks are cooperating in the process.

 

On February 18, the Haryana government de-empanelled IDFC First Bank and AU Small Finance Bank for government business in the state. “That is a natural reaction from counterparties. It is our responsibility to do better, provide necessary assurances, and get back into the game. We will win back the confidence of that client,” he said.