A suspected fraud of approximately ₹590 crore at IDFC First Bank has escalated into a complex governance and market event after discrepancies were discovered at its Chandigarh branch.
What began as a routine account closure request has quickly evolved into a multi-agency investigation, a forensic audit, and a sharp erosion of investor confidence.
Also Read: IDFC First Bank fraud: How a Rs 590 crore hit erased Rs 14,000 crore in investor wealth
The trigger that exposed the mismatch
The situation came to light on February 18, when the Haryana Finance Department issued a circular de-empanelling IDFC First Bank and AU Small Finance Bank for government business.“IDFC First Bank and AU Small Finance Bank are hereby de-empanelled for government business in Haryana with immediate effect till further orders,” the order said.
The directive instructed all departments to stop routing funds through these banks, transfer existing balances, and close their accounts.
It also flagged concerns over fund handling, including instances where money meant for fixed deposits was retained in lower-yield savings accounts, along with lapses in reconciliation practices.
To tighten oversight, the government mandated stricter compliance measures, including monthly account reconciliation.
Following the issuance of the circular, a Haryana government department noticed a discrepancy between the balance recorded in the bank’s system and the amount reported by the department while it sought to close its account and transfer funds to another bank.
Discrepancies multiply across accounts
After this incident, several Haryana government entities engaged with the bank regarding their accounts and found similar mismatches.
In its regulatory filing on February 22, the bank stated: “Prima facie, unauthorised and fraudulent activities have been carried out by certain employees at a particular branch in Chandigarh in a specific set of Haryana state government accounts and potentially involving other individuals/entities/counterparties.”
A preliminary internal review showed that the issue was confined to government-linked accounts handled at the Chandigarh branch and did not extend to other customers.
“We are watching the development. There is no systemic issue,” RBI Governor Sanjay Malhotra said, according to PTI.
Also Read: RBI sees no systemic risk in Rs 590-crore fraud uncovered by IDFC First Bank
According to the bank, the total amount under reconciliation has been estimated at around ₹590 crore, although the final financial impact remains “uncertain” and will depend on claim validation, recovery of funds, and legal proceedings.
The bank said recoveries may be pursued through multiple channels, including lien-marking balances in beneficiary accounts, identifying liabilities of involved entities, and legal mechanisms.
Immediate actions and regulatory response
Following the discovery, the bank initiated steps to contain the situation and comply with regulatory requirements under SEBI norms.
Four employees suspected of involvement are said to have been suspended pending investigation. The bank has also initiated disciplinary, civil and criminal proceedings against internal and external parties. A complaint has been filed with police authorities, and statutory auditors have been informed.
A meeting of the Special Committee of the Board for Monitoring and Follow-up of Cases of Frauds (SCBMF) was convened on February 20, 2026, followed by meetings of the Audit Committee and the Board of Directors on February 21.
To independently examine the incident, the bank said that it “is in the process of appointing an independent external agency to conduct a forensic audit. In furtherance of the same, we wish to inform you that the Bank has appointed KPMG to initiate an independent forensic audit in this matter.”
The forensic audit is expected to establish how the discrepancies arose, identify control failures, and determine accountability.
Recovery efforts and technical mechanisms
The bank has initiated recall requests to beneficiary banks, asking them to place liens on balances held in suspicious accounts. A lien effectively freezes funds, preventing withdrawals and enabling potential recovery if transactions are proven fraudulent.
This step is critical as such frauds often involve layered transfers across multiple accounts. By ring-fencing funds in downstream accounts, the bank aims to limit losses. The final loss figure will depend on how much of the ₹590 crore can be recovered through these measures and subsequent legal processes.
Market reaction and financial impact
The disclosure triggered a sharp reaction in equity markets, with shares of IDFC First Bank falling as much as 20% in a single session, wiping out approximately ₹14,438 crore in market capitalisation.
The scale of the suspected fraud is significant relative to the bank’s earnings, exceeding its December quarter net profit of ₹503 crore.
Brokerages offered varying estimates of the impact. UBS pegged it at roughly 22% of FY26 profit after tax, with a limited impact of around 1% on net worth, while Morgan Stanley estimated a hit of about 20% to FY26 profit before tax.
Management response and containment narrative
Managing Director and CEO V. Vaidyanathan sought to reassure stakeholders, describing the incident as isolated and not indicative of systemic failure.
“The bank has necessary controls in place, including maker, checker and authoriser for clearing cheques or debit instructions from the department,” Vaidyanathan told ET earlier. “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.”
Vaidyanathan also noted that the bank remains well-capitalised and expects the financial impact to be manageable. He said the event is unlikely to significantly affect profits, highlighting that wider net interest margins and credit costs will provide support.
“So, on a standalone basis, we were expecting a very solid Q4 in terms of profitability,” he said.
