Shares of AU SFB tanks nearly 7% on de-empanelment by Haryana govt

Shares of AU Small Finance Bank tumbled nearly 7 per cent on Monday after the Haryana state government de-empanelled the bank, along with IDFC First Bank, for government business in the state. Shares of the bank were trading at Rs 959.75 on the BSE.

 

In a notification issued on February 18, the state government stated that no government funds will henceforth be parked, deposited, invested, or transacted through these banks. 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 requires prior approval.

 

 

The state government further highlighted in its notification that its finance department noticed certain banks were not adhering to the conditions for fixed deposits made by departments and corporations. “In several cases, it has been observed that despite clear instructions to place funds in flexible fixed deposits, or other fixed deposit instruments offering higher rates of interest, banks are retaining the funds in savings accounts, resulting in lower returns and consequential financial loss to the government,” the state government said.

 

Responding to the allegations, AU Small Finance Bank said it is engaging with the Government of Haryana to assess the reasons for the de-empanelment (the de-empanelment order was received on February 18, 2026) and will fully cooperate with the government and any other authorities, as required.

 

The bank highlighted 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.

 

Additionally, the bank highlighted that it has initiated an internal review following communications from a department of the Haryana government regarding account-related information and suspected unauthorised transactions, even as it maintained that there is no indication of any financial impact on the bank at this stage.

 

In a regulatory disclosure, the bank said it first received a communication dated February 16, 2026, from a department of the Government of Haryana seeking account-opening and transaction details pertaining to a specific account opened by the department.

 

On February 18, 2026, the bank received another communication from the same department seeking information on suspected unauthorised transactions between the government account and another customer account maintained with the bank. On the same day, the Finance Department of the Government of Haryana informed the lender of its de-empanelment for government business in the state. Based on these communications, the bank said it initiated an internal review.

 

The bank stated that both the government account and the customer account were opened after completion of all applicable know-your-customer (KYC) checks, requisite authorisations, and in accordance with its internal policies and processes. According to the bank’s preliminary findings, the government account was opened with an initial credit of Rs 25 crore transferred from a large private sector bank. Subsequently, additional credits of around Rs 47 crore were received through multiple transactions from another private sector bank that has recently made a public disclosure regarding unauthorised and suspected fraudulent activities.

 

Of the total credits received in the government account, around Rs 47 crore was transferred to the customer account through 14 transactions. The bank said these transactions were initiated by the concerned government department, duly authorised, and executed in accordance with the instructions provided, in the normal course of business.

 

The lender said it maintains a complete audit trail, including account-opening forms, KYC documentation, cheques and other transaction instructions, verification call records, and supporting documents, all of which have been submitted to the concerned department.

 

The government account was closed on January 15, 2026, as per instructions from the department, and the outstanding balance of Rs 25 crore, along with accrued interest, was transferred back to the originating large private sector bank.

 

Based on the available facts and its preliminary review, the bank said there is no indication at this stage of any fraudulent activity affecting the bank or any financial impact. The matter has been placed before the board, and certain employees have been placed off duty to ensure a fair and transparent review, it added.