Account closure spirals into Rs 590 crore crisis at IDFC First Bank

Shares of IDFC First Bank plunged almost 20 per cent on Monday after the lender disclosed a suspected Rs 590 crore fraud involving a cluster of Haryana government-linked accounts at its Chandigarh branch.

The issue surfaced after a Haryana government department sought to close its account and transfer funds to another bank. During routine processing, discrepancies were detected between the balance claimed and the amount reflected in the bank’s systems. From 18 February onwards, additional state entities approached the bank with similar concerns, prompting an internal review.

In a stock exchange filing, the bank said the irregularities appear confined to a specific group of Haryana government accounts operated through the Chandigarh branch and do not extend to other customers. It described the matter as involving prima facie unauthorised and fraudulent activity by certain employees, potentially in collusion with external parties.

The suspected amount under reconciliation currently stands at around Rs 590 crore. The final financial impact, the bank said, will depend on validation of claims, recoveries, insurance coverage and the outcome of legal proceedings.

Investor reaction was swift. The bank’s shares dropped nearly 19–20 per cent to about Rs 68 apiece, with significant sell orders queued and limited buying interest during trading hours.

Brokerage houses moved quickly to assess the potential hit. Estimates suggest the suspected amount represents roughly 0.9 per cent of the bank’s net worth and about one-fifth of its projected pre-tax profit for the 2026 financial year. Analysts at UBS and Morgan Stanley indicated that while the impact on earnings could be meaningful, the effect on capital ratios would likely be limited. Jefferies said the lender would need to reassure investors that the problem was not systemic.

The bank has reported the matter to the Reserve Bank of India, law enforcement agencies and other statutory authorities, and has filed a police complaint. Four employees have been suspended pending investigation, with management pledging strict disciplinary, civil and criminal action against those found responsible.

A Special Committee of the Board for Monitoring and Follow-up of Fraud Cases met on 20 February, followed by meetings of the Audit Committee and the full Board the next day. The bank has appointed KPMG to conduct an independent forensic audit.

As part of recovery efforts, the lender has issued recall requests and asked certain beneficiary banks to place lien marks on balances in accounts identified as suspicious.

The Haryana government has temporarily de-empanelled IDFC First Bank and AU Small Finance Bank for government business with immediate effect, pending further orders. According to a circular issued by the state finance department, no government funds will be deposited, invested or transacted through the two institutions during the review period.

The circular confirmed that discrepancies were first noticed when a department requested account closure and fund transfer, after which similar mismatches were identified in other state-linked accounts.

Although the exposure is not considered large enough to threaten the bank’s overall stability, the involvement of public-sector accounts and alleged manual overrides has intensified scrutiny.

The disclosure comes despite a period of strong operating performance. For the quarter ended 31 December 2025, the bank had reported a 24 per cent rise in deposits and a 48 per cent increase in net profit to Rs 503 crore year-on-year.

For now, management maintains that the breach is contained and restricted to a specific set of accounts. However, as the forensic audit progresses, questions remain over recoveries, accountability and whether deeper operational lapses could emerge.

With agency inputs