IDFC First Bank on Monday said it has appointed KPMG as forensic auditor to investigate the ₹590-crore fraud that hit the bank’s Chandigarh branch, involving Haryana state government accounts.
The bank’s MD, CEO V. Vaidyanathan said the lender will “spare no one” as it suspected that the bank’s employees colluded with external parties to commit the fraud.
“On the basis of the work we have done, clearly a case of employee fraud and our internal details show external parties are also involved…this was a physical transaction where checks were forged. This is the oldest kind of fraud probably known to banking,” Vaidyanathan said.
“How this happened is obviously through the connivance of employees. Maker, checker, and authorizer systems exist, but obviously, a group of people came together and made it happen. We will get to the bottom of this. We will spare no one,” he said.
Government deposits
According to bank management, Haryana government’s funds contribute 0.5 per cent towards IDFC First Bank’s overall deposits of ₹2.82 lakh crore.
The state government has already withdrawn ₹200 crore from the bank and has de-empanelled IDFC First Bank from undertaking state government business, which will lead to complete outflow of the government deposit with the bank.
The bank has 8-10 per cent of its deposits coming from all states and central government. While the bank estimates ₹590 crore of impact on its balance sheet due to fraud, final net impact will be based on total recoveries, insurance cover, and any extra claims.
IDFC First Bank’s shares hit lower circuit falling 20 per cent in intra-day trading. Brokerage Anand Rathi has downgraded the bank’s stock to “sell” from “buy,” lowering the per share target price to ₹65 from ₹80 earlier.
Vaidyanathan said from here on the bank will approve cheque based transactions above a certain threshold only after the transaction gets approved by the customer. Lender will also use AI for primary verification of large ticket transactions.
AU Small Finance Bank (AU SFB), recently de-empanelled from handling Haryana government business, said a state department opened an account with an initial ₹25 crore transferred from a large private sector bank, followed by ₹47 crore received through multiple transactions from IDFC First Bank.
Of the total credits, ₹47 crore was moved to a customer account via 14 transactions, all initiated and duly authorised by the concerned government department. The bank said it has submitted complete audit trails and KYC records to authorities, adding there is currently no indication of financial loss or fraudulent activity.ENDS
How did this fraud happen?
- IDFC First Bank first received account closure and balance transfer request from a department of Haryana state government. Bank initiated the process but noticed that transfer amount requested by the department did not match with balance held in the account.
- Upon review, the bank found that certain employees of this branch, most possibly in connivance with external parties, have fraudulently transferred amount held in state government department deposit account to beneficiaries who had accounts outside of our bank.
- Management says its employees passed the entries and transferred the money to certain parties outside the bank from the client account. External parties also used cheques, which in hindsight, look forged, but branch employees cleared them anyway.
Published on February 23, 2026
