Mid and small sized lenders may see short term impact in terms of government entities parking their money with State-owned lenders
| Photo Credit:
iStockphoto
Lenders have raised scrutiny over branch generated, high-value cheque based transactions, after IDFC First Bank reported a material ₹590 crore fraud from its single Chandigrah branch last week, senior bankers say.
“We plan to put in an explicit system for high-value transactions. For branch-based transactions exceeding a threshold, we will require explicit confirmation via a verified digital channel or app. We are also going to use AI. Currently, a branch manager physically clears cheques, but we will implement a system where AI performs initial checking followed by human confirmation to better handle exceptions. This was a physical, manual cheque fraud—the most traditional type. We will improvise and put new controls in place,” said V Vaidyanathan, MD & CEO, IDFC First Bank.
A senior private sector banker said that following the IDFC First Bank disclosure, all banks are reviewing and checking their internal controls, especially for high value transactions. “On the branch level, we are reviewing and upgrading maker-checker system, scrutinising repeat transactions extensively and adding various layers of authentication apart from confirmation call to ensure authenticity of transaction,” a senior private sector banker said.
Industry impact
Sources said the Reserve Bank of India (RBI) is understood to be comfortable with IDFC First Bank management’s prompt disclosures and corrective actions that they took post occurrence of fraud, and the central bank is unlikely to bring in any policy change for branch led operation. The regulator, however, may engage with the bank bilaterally to identify the gaps and persons accountable for the fraud.
Another senior banker noted that mid and small sized lenders may see short term impact in terms of government entities parking their money with State-owned lenders, the trend may not sustain for a longer period as public sector banks, too, have faced material frauds in the past and are relatively less agile than private banks on technology infrastructure.
“The IDFC First Bank fraud, it appears, occurred due to connivance between bank employees, third party broker and possibly Haryana state government department officials. Banks can build all the processes, but when employees act in connivance with third party individuals, it becomes tough to spot frauds,” they said.
The banker noted that earlier the banking industry witnessed majority frauds on advances side, but over the last five years, frauds on the deposit side has increased. These include mule accounts, digital frauds, micro-deposit schemes fraud, cheque fraud, account takeover fraud, among others.
“A customer used to trust her banker as much as her doctor. But over last 10-15 years period, bankers have lost that trust. Some engage in quick money making schemes, and often loss money trading in risky instruments like F&O. Under severe debt stress, they engage in fraudulent practises. Sometimes they may act in connivance with private individuals as was seen in IDFC’s case and sometimes they may move money from dormant accounts,” the banker said.
Published on February 24, 2026
