In a call with analysts on Monday, IDFC First Bank claimed that the Rs 590 crore fraud that was discovered at its Chandigarh branch involving accounts connected to the Haryana government was a isolated incident that resulted from some employees allegedly conspiring with outside parties to transfer money to beneficiaries outside the bank.
The employees in question have been suspended, the bank clarified. The issue has also been reported to the auditors and regulators, police reports have been made, and other law enforcement organizations are being enlisted to look into it.
KPMG has already been hired by the bank to carry out a forensic audit of the situation.
As a result of this episode, the lender’s shares fell by around 18% on the BSE.
Furthermore, the bank claimed to have discovered a shortfall of Rs 490 crore; however, reconciliation revealed an additional discrepancy of Rs 100 crore, bringing the total impact to Rs 590 crore. We released this figure based on our best assessment at this time. However, we believe that the figure is generally suitable for the circumstances at hand.
On the analyst call, the bank’s management explained, We do not expect this to move broadly from here on to a great extent.
Senior management of the bank, meanwhile, claimed that none of the top executives were complicit in the fraud and that the institution is still well capitalized, with sufficient buffers to withstand the effects of the event.
This particular, isolated incidence happened at a single branch with a single clientele. In essence, this is a situation in which our staff processed the entries and moved funds from the client’s account to specific individuals outside the bank after allegedly receiving debit instructions from the client.
This is blatantly fraudulent, according to V Vaidyanathan, MD & CEO of IDFC First Bank.
Additionally, checks were utilized. It seems forced in retrospect, but they were vetted by someone. It is evident from our study that this is an instance of employee fraud. It is also evident from our internal findings and facts that outside parties were involved.
Thus, this is a big issue for us, he stated, noting that no such incident had occurred in the previous ten years that they had been managing the bank.
No one involved in this event would be spared, Vaidyanathan promised. No one will be spared. And we’ve moved in fast. For this, we have enlisted KPMG as a forensic auditor.
And we anticipate that they will move in quickly and diligently. And we will have the nation’s law enforcement’s complete backing, he declared.
Nevertheless, he reassured investors that the bank is now in a solid position fundamentally, as its operational profit has increased to almost 2% from 0.5% previously.
Based on the base rate at which it lends and the margins it generates, which were between 5.7 and 5.8 percent last quarter and are predicted to be around 5.8 percent this quarter, he stated that this is anticipated to climb further to about 3.5 percent in due course as the bank fully develops.
He stated that the bank thinks the incident will pass because of this underlying strength. The bank will absorb the impact as it occurs and it will pass via the profit and loss account.
He emphasized, however, that even though the financial impact could be reflected in the P&L, the episode will live on in the bank’s memory because it was a very important event.
The management of the bank emphasized that the government of Haryana’s deposits make up approximately 0.5% of the bank’s total deposits of Rs 2.82 trillion.
The Haryana government’s deposits have seen an outflow of about Rs 200 crore since the event. In all, 8-10% of the bank’s deposit base is made up of deposits from the federal and state governments.
We don’t anticipate the fraud to be widespread and think it is a singular problem involving a single bank. Nevertheless, government deposits in private sector banks will be subject to increased scrutiny, and over time, some deposits may transfer to PSU banks, which would have a special impact on CASA.
According to Suresh Ganapathy, Managing Director and Head of Financial Services Research at Macquarie Capital, CASA ratios have been under pressure throughout the system since COVID, having dropped 500–600 basis points from their high levels.
Nomura claims that the sum under reconciliation (Rs 590 crore) represents 19 basis points (bps) of the CET-1 ratio, which was 14.23% as of December 25, and 28% of FY26F earnings.
The precise effect on the bank’s finances will be determined by the legal recovery process, obligations of the parties engaged in the transactions, and possible recoveries through liens placed on fraudulent beneficiary accounts held with other banks.
Over the weekend, the bank revealed that it had discovered a scam involving accounts belonging to the Haryana state government totaling Rs 590 crore at one of its Chandigarh branches.
Four branch employees of the bank have been suspended. After one of the state government departments attempted to liquidate its IDFC First Bank bank account and move the money to another bank, the disparities were discovered.
Nevertheless, the department’s stated sum did not correspond to the account balance.
The bank stated that, based on the information currently available and a preliminary review, there is no indication of any financial impact or fraudulent activity involving the bank.
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As a bank, we reaffirm 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 added.
The board of the bank has been notified, and the bank is still conducting an internal investigation into this issue. Some employees have been placed off duty to ensure a fair and transparent review, the bank stated.
